Crane and Matten

Crane and Matten  Business Ethics (3rd Edition) Chapter 1 Introducing Business Ethics What is business ethics? Business ethics  is the study of business situations, activities, and decisions where issues of right and wrong are addressed. Ethics and the law -grey area Defining morality, ethics and ethical theory no rms, values and beliefs embedded in social processes which Morality  is concerned with the norms, define right and wrong for an individual individua l or a community. Ethics  is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for any given situation. These rules and principles are called ethical theories . The relationship between morality, ethics and ethical theor y

Why is business ethics important? Power and influence of business in society Potential to provide major contribution to society Potential to inflict harm Increasing demands from stakeholders Lack of business ethics education or training Continued occurrence of ethical infractions Evaluating different ways of managing business ethics Interesting and rewarding Types of misconduct across sectors Observed ethical misconduct across sectors Differences across organizational types Globalization: a key context for business ethics? What is globalization? According to Scholte (2005) globalization is not : „internationalization‟ „liberalization‟ „universalization‟ „westernization‟ Globalization is: a process which diminishes the necessity necessity of a common and shared territorial  basis for social, economic, and political activities, processes, and relations. „deterritorialization‟ Relevance of globalization for business ethics Cultural issues

Legal issues Accountability issues Globalization can affect all stakeholders of the corporation Ethical impacts of globalization International perspectives on business ethics Different approaches to business ethics Who is responsible for ethical conduct in business? Who is the key actor in business ethics? What are the key ethical guidelines for ethical behaviour? What are the key issues in business ethics? What is the most dominant stakeholder management approach? Regional differences: Europe, North America, Asia Sustainability: a key goal for business ethics? Defining sustainability Sustainable development  is development that meets the needs of the present without compromising the ability of future generations to meet their own n eeds. (World Commission on Environment and Development 1987) Sustainability  refers to the long-term maintenance of systems according to environmental, economic and social considerations The three components of sustainability Triple bottom line Coined by John Elkington Bottom line thinking suggests sustainability as a goal Three dimensions: Environmental perspectives Economic perspectives Social perspectives Corporate commitments to sustainability Framing Business Ethics: Corporate Responsibility, Stakeholders, and Citizenship Lecture 2 Overview Analyse the notion of responsibility for corporations; Distinguish the various concepts of CSR; Present the stakeholder theory of the firm; Outline the concept of corporate accountability; Critically examine the notion of corporate citizenship; Discuss implications of these –  mostly  mostly US-born –  concepts  concepts for different regions Towards a framework for business ethics

What is a corporation? Key features of a corporation A corporation is essentially defined in terms of legal status and the ownership of assets Corporations are typically regarded as „artificial persons‟ in the eyes of the law Corporations are notionally „owned‟ by shareholders, but exist ind ependently of them Managers and directors have a „fiduciary‟ responsibility to protect the investment of shareholders Can a corporation have social responsibilities? Milton Friedman‟s classic article is “The social responsibility of business is to increase its  profits” (1970) Friedman vigorously argued against the notion of o f social responsibilities for corporations based on three main arguments: Only human beings have a moral responsibility for their actions It is managers‟ responsibility to act solely in the interests of shareholders Social issues and problems are the proper province of the state rather than corporate managers Can a corporation be morally responsible for its actions? Evidence to suggest that legal designation of a corporation makes it unable to be anything but self-interested (Bakan 2004) Long, complex debate but generally support from literature for some degree of responsibility accredited to corporations. Argument based on: Every organisation has a corporate internal decision structure which directs decisi ons in line with predetermined goals (French 1979) All organisations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation –  organizational  organizational culture (Moore 1999) Corporate Social Responsibility Why do corporations have social responsibilities?  Business reasons („enlightened self -interest‟) Extra and/or more satisfied customers Employees may be more attracted/committed Forestall legislation Long-term investment which benefits corporation  Moral reasons: Corporations cause social problems Corporations should use their power responsibly All corporate activities have some social impacts Corporations rely on the contribution of a wide set of stakeholders in society, not just shareholders What is the nature of corporate social responsibilities? Corporate social responsibility  includes the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time (Carroll and Buchholtz 2009:44) -part model of corporate social responsibility Carroll‟s four -part CSR in an international context CSR strong in US. Influence elsewhere is more recent. This Th is is partly explained by explicit  vs.  vs.  CSR implicit  CSR Regional differences exist with respect to all CSR levels:

Economic responsibility

Focus in USA on shareholders; France has h as extensive responsibility for employees; India has tradition of investment in the local community com munity Legal   responsibility   responsibility State seen in Europe as key k ey enforcer of rules; elsewhere government seen with more scepticism (e.g. corrupt, interfering with liberty) Ethical r  esponsibility esponsibility Wide range of local ethical values & preferences: expectations vary Philanthropic responsibility Europe tends to compel giving via legal framework; elsewhere (e.g., USA, India, China), companies are expected to share their wealth. CSR and strategy: corporate social responsiveness Corporate social responsiveness  refers to the capacity of a corporation to respond to social  pressures (Frederick 1994) 4 „philosophies‟ or strategies o f social responsiveness (Carroll 1979) Reaction Defence Accommodation Proaction Outcomes of CSR: corporate social performance Outcomes delineated in three concrete areas: Social policies Social programmes Social impacts Stakeholder theory of the firm Stakeholder theory of the firm Theory developed by Edward Freeman (1984) A stakeholder  of an organization is: …any group or individual who can affect, or is affected by, the achievement of the organization‟s objectives (Freeman 1984:46) More precise definition of „affects‟ and „affected by‟ (Evan and Freeman 1993) Principle of corporate rights - the corporation has the obligation not to violate the rights of others  companies are responsible for the effects of their actions Principle of corporate effect  –  companies on others Stakeholder theory of the firm: Traditional management model Stakeholder theory of the firm Stakeholder theory of the firm: A network model Why stakeholders matter Milton Friedman –  businesses  businesses should only be run in the interests of their owners Freeman - others have a legitimate claim on the corporation Legal perspective

„Stake‟ in corporation already protected legally in some way (e.g. legally binding contracts) Economic perspective Externalities –  outside contractual relationships Agency problem – short term interests of „owners‟ vs. long term interests of managers, employees, customers etc. A new role for management According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management. Rather than simply being agents of shareholders, management has to take into account the rights and interests of all legitimate stakeholders: Stakeholder democracy Corporate governance Stakeholder thinking in an international context One could argue that although the terminology of stakeholder theory is relatively new in places like Europe or Asia, the general principles have actually been practised   for some time: German supervisory board includes employee representatives „Keiretsu‟ system in Japan (Chaebol in Korea), a network of banks, manufacturers, suppliers and service providers Different forms of stakeholder theory Donaldson & Preston (1995): Normative stakeholder theory : attempts to provide a reason why corporations  should  take into account stakeholder interests Descriptive stakeholder theory : attempts to ascertain whether (and how) corporations actually do take into account stakeholder interests Instrumental stakeholder theory : attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholder interests Corporate accountability The firm as a „political‟ actor  Corporate accountability Corporate accountability  refers to whether a corporation is answerable in some way for the consequences of its actions Firms have begun to take on the role of „political‟ actors –  taken up many of the functions  previously undertaken by government because: Governmental failure Increasing power and influence of corporations Reasons for the political role of the firm Government failure Risk society thesis Rise of „subpolitics‟ „Organized irresponsibility‟ Corporate power on the rise Liberalization and deregulation results in more power and choice for private actors Privatization of „public‟ services Responsible for employment decisions Globalization

Governments increasingly encourage self-regulation The problem of democratic accountability Who controls corporations? To whom are corporations accountable? Key to corporate accountability is transparency Transparency  is the degree to which corporate decisions, policies, activities and impacts are acknowledged and made visible to relevant stakeholders Corporate citizenship Defining corporate citizenship: three perspectives A limited view of CC this essentially equates CC with corporate philanthropy An equivalent view of CC this essentially equates CC with CSR An extended view of CC this acknowledges the extended political role of the corporation in society Commitments to corporate citizenship Three views of corporate citizenship An extended view of CC Assessing corporate citizenship as a framework for business ethics Extended view of CC adds something significant that helps us frame business ethics in new ways: Helps us better see the political role of the corporation Clarifies the demand for corporate accountability Helps to understand business in relation to common citizenship rights within different cultures and some of the challenges posed by globalization The rights of citizenship have strong links to the goal of sustainability Provides a critical perspective on corporations‟ social role that is more in keeping with non-US ways of thinking about business ethics Summary Business ethics is related to the social role of the corporation Confining corporations to commercial activities too limited Different perspectives and their relevance in European context CSR Stakeholder theory Corporate accountability Effects of globalization on role of corporation Corporate citizenship is latest concept in the field

Chapter 3 Evaluating Business Ethics:  Normative Ethical Theories Lecture 3 Overview

Locate the role of ethical theory Highlight international differences in perspectives Provide critical overview of traditional ethical theories Explore contemporary ethical theories What are normative ethical theories? Ethical theories are the rules and principles that determine right and wrong for any given Crane and Matten (2010) situation Normative ethical theories  are those that propose to prescribe the morally correct way of acting

As opposed to descriptive ethical theories which seek to describe how ethics decisions are actually made in business The role of ethical theory The role of ethical theory Two extreme positions (De George 1999) Ethical absolutism claims there are eternal, universally applicable moral principles Right and wrong are objective qualities, can be rationally determined Typically traditional ethical theories Ethical relativism claims morality is context-dependent and subjective  No universal right and wrongs that can be rationally determined; depends on person making the decision & culture in which they are located Typically contemporary ethical theories  Normative ethical theories  North American and European origins and differences Differences between Anglo-American and European approaches based on philosophical arguments Individual versus institutional morality US tend to individualistic perspective Europe towards wider economic and governing institutions Questioning versus accepting capitalism US tend to accept the capitalist framework Europe tend to question the ethical justification of capitalism Justifying versus applying moral norms US tend to focus on application of morality Europe focus on justification and ethical legitimation of norms In contrast, Asian perspectives tend to be based on religion (e.g. Islam, Buddhism) Western modernist ethical theories Traditional ethical theories Generally offer a certain rule or principle which one can apply to any given situation These theories generally can be differentiated into two groups Major normative theories Egoism Theory of egoism - an action is morally right if the decision-maker freely decides an action to  pursue either their (short-term) desires or their (long-term) interests. Adam Smith (1793): pursuit of individual interest morally acceptable as in visible hand of market creates benefit for all

Relies on free competition and good information „Enlightened egoism‟ However, markets do not function perfectly Anti-globalisation movement Sustainability debate Utilitarianism According to utilitarianism , an action is morally right if it results in the greatest amount of good for the greatest number of people affected by the action Also called the „greatest happiness principle‟ Based on cost-benefit analysis Problems with Utilitarianism Subjectivity This has led to refinement of theory Act utilitarianism Rule utilitarianism Issues around quantification and distribution of utility Act- and Rule-Utilitarianism Act utilitarianism Looks to single actions and bases the moral judgement on the amount of pleasure and the amount of pain this single action causes. Rule utilitarianism looks at classes of action and ask whether the underlying principles of an action produce more pleasure than pain for society in the long run.

Ethics of duties ‘Categorical Imperative’ (Kant) Maxim 1: Consistency Act only according to that maxim by which you can at the same time will that it should  become a universal law. Maxim 2: Human Dignity Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only. Maxim 3: Universality Act only so that the will through its maxims could regard itself at the same time as universally lawgiving (would others agree? Would you be happy to see your decision reported in the press?) Problems with ethics of duties Undervaluing outcomes Complexity Misplaced optimism? Ethics of rights and justice Natural rights

Certain basic, important, unalienable entitlements that should be respected and protected in every single action. Based on consensus about nature of human dignity Strongly based in western view of morality Justice The simultaneously fair treatment of individuals in a given situation with the result that everybody gets what they deserve Fair procedures (procedural justice) Fair outcomes (distributive justice) John Rawls‟s „Theory of Justice‟ •

Each person is to have an equal right to the most extensive total system of basic liberties compatible with a similar system of liberty for all. •

Social and economic inequalities are to be arranged so that they are both: •

•

to the greatest benefit of the least advantaged;

attached to offices and positions open to all under conditions of fair equality of opportunity. Limits of traditional theories Too abstract Too reductionist Too objective and elitist Too impersonal Too rational and codified Too imperialist Alternative perspectives on ethical theory Approaches based on character and integrity Virtue ethics Contends that morally correct actions are those undertaken b y actors with virtuous characters. Therefore, the formation of a virtuous character is the first step towards morally correct  behaviour Acquired traits Intellectual virtues Moral virtues Approaches based on ethics and responsibility Feminist ethics An approach that prioritizes empathy, harmonious and healthy social relationships, care for one another, and avoidance of harm above abstract principles Key elements Relationships Decisions taken in context of personal human interrelations

Responsibility Active „taking‟ of responsibility, rather than merely „having‟ it Experience Learn and develop from experience Approaches based on procedures of norm generation Discourse ethics Aims to solve ethical conflicts by providing a process of norm generation through rational reflection on the real-life experiences of all relevant participants Key elements Ultimate goal of ethical issues in business should be the  peaceful settlement of conflicts Different parties in a conflict should sit together and enga ge in a discourse about the settlement of the conflict, and ultimately provide a situation that is acceptable to all „ideal discourse‟ criteria Approaches based on empathy and moral impulse Postmodern ethics An approach that locates morality beyond the sphere of rationality in an emotional „moral impulse‟ towards others. It encourages individual actors to question everyday practices and rules, and to listen to and follow their emotions, inne r convictions and „gut feelings‟ about what they think is right and wrong in a particular incident of decision-making. Postmodern business ethics Postmodern business ethics emphasises (Gustafson, 2000:21) Holistic approach Examples rather than principles „Think local, act local‟ Preliminary character Summary Towards a pragmatic use of ethical theory Typical Perspective Pluralistic Perspective Pluralism? Crane and Matten (2010) argue that for the practical purpose of making effective decisions in  business:  Not suggest one theory or one approach as the best or true view of a moral dilemma Suggest that all these theoretical approaches throw light from different angles on one and same  problem Complementary rather than mutually exclusive Advocate position of pluralism Middle ground between absolutism and relativism Considerations in making ethical decisions: summary of key insights from ethical theories

Chapter 4 Making Decisions in Business Ethics Descriptive Ethical Theories

Lecture 4 Overview Examine the question of why ethical and unethical decisions get made in the workplace Determine what an ethical decision is Review prominent ethical decision-making models Discuss the importance of differences between individuals in shaping ethical d ecision-making Critically evaluate the importance of situational influences on ethical de cision-making (issues and context based) Identify points of leverage for managing and improving ethical decision-making in business Descriptive Ethical Theories

Descriptive business ethics theories seek to describe how ethics decisions are actually made in  business, and what influences the process and outcomes of those decisions. What is an ethical decision? Main factors in deciding the moral status of a situation Decision likely to have significant effects on others Decision likely to be characterised by choice, in that alternative courses of action are open Decision is perceived as ethically relevant by one or more parties Models of ethical decision-making Stages in ethical decision-making Relationship with normative theory The role of normative theory in the stages of ethical decision-making is primarily in relation to moral judgement Moral judgements can be made according to considerations of rights, duty, consequences, etc. Commercial managers tend to rely on consequentialist thinking However, the issue of whether  and how normative theory is used by an individual decisionmaker depends on a range of different factors that influence the decision-making process Influences on ethical decision-making Two broad categories: individual and situational (Ford and Richardson 1994) Individual factors - unique characteristics of the individual making the relevant decision Given at birth Acquired by experience and socialisation Situational factors -  particular features of the context that influence whether the individual will make an ethical or unethical decision Work context The issue itself including Intensity ethical framing

Framework for understanding ethical decision-making Limitations of ethical decision-making models Models useful for structuring discussion and seeing the different elements that come into play Limitations  Not straightforward or sensible to break model down into discrete units

Various stages related or interdependent  National or cultural bias Model is intended not as a definitive representation of ethical decision-making, but as a relatively simple way to present a complex process International perspectives on ethical decision-making Research on individual factors  influencing ethical decision-making has a strong US and Asian  bias Consistent with choice within constraints Research on situational factors  originated by European authors Consistent with concern for constraints themselves Individual influences on ethical decision-making Individual influences on ethical decision-making Age and gender Age Results contradictory However experiences may have impact Gender Individual characteristic most often researched Results contradictory These categories too simplistic  National and cultural characteristics People from different cultural backgrounds likely to have different beliefs about right and wrong, different values, etc. and this will inevitably lead to variations in ethical decision-making across nations, religions and cultures Hofstede (1980; 1994) influential in shaping our understanding of these differences –  our „mental programming‟: Individualism/collectivism Power distance Uncertainty avoidance Masculinity/femininity Long-term/short-term orientation Education and employment Type and quality of education may be influential E.g. business students rank lower in moral development than others and more likely to cheat „Amoral‟ business education reinforces myth of business as amoral Psychological factors Cognitive moral development (CMD)  refers to the different levels of reasoning that an individual can apply to ethical issues and problems 3 levels (details over the next two slides) Criticisms of CMD Gender bias Implicit value judgements Invariance of stages An individual‟s locus of control  determines the extent to which they believe that they have control over the events in their life

Stages of cognitive moral development (I) Stages of cognitive moral development (II) Personal values, integrity & moral imagination Personal values „an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state‟ (Rokeach 1973:5) Personal integrity Defined as an adherence to moral principles or values Moral imagination Concerned with whether one has “a sense of the variety of possibilities and moral con sequences of their decisions, the ability to imagine a wide range of possible issues, consequences, and solutions” (Werhane, 1998:76) Situational influences on decision-making Situational influences on ethical decision-making Moral Intensity Jones (1991:374-8) proposes that the intensity of an issue will vary according to six factors: Magnitude of consequences Social consensus Probability of effect Temporal immediacy Proximity Concentration of effect Moral framing The same problem or dilemma can be perceived very differently according to the way that the issue is framed Language important aspect of moral framing (using moral language lik ely to trigger moral thinking) Moral muteness  (Bird & Walters 1989) because of concerns regarding perceived threats to: Harmony Efficiency Image of power and effectiveness How ethical decisions are justified: rationalization tactics Systems of reward Adherence to ethical principles and standards stands less chance of being repeated and spread throughout a company when it goes unnoticed and unrewarded “What is right in the corporation is not what is right in a man‟s home or in his church. What is right in the corporation is what the guy above you wants from you. That‟s what morality is in the corporation” (Jackall, 1988:6) Authority People do what they are told to do –  or what they think they‟re being told to do Recent survey of government employees (Ethics Resource Center, 2008: 9): 20% think top leadership is not held accountable 25% believe top leadership tolerates retaliation against those reporting ethical misconduct 30% don‟t believe their leaders keep promises Bureaucracy

Jackall (1988), Bauman (1989, 1993) and ten Bos (1997) argue bureaucracy has a number of negative effects on ethical decision-making Suppression of moral autonomy Instrumental morality Distancing Denial of moral status

Work roles and organizational norms and culture Work roles Work roles can encapsulate a whole set of expectations about what to value, how to relate to others, and how to behave Can be either functional or hierarchical Group norms delineate acceptable standards of behaviour within the work community E.g. ways of talking, acting, dressing or thinking  National and cultural context Instead of looking at the nationality of the individual making the decision; now we are considering the nation in which the decision is actually taking place, regardless of the decisionmaker‟s nationality Different cultures still to some extent maintain different views of what is right and wrong Summary In this lecture we have: Discussed the various stages of and influences on ethical decision-making in business Presented basic model of decision-making Outlined individual and situational influences on ethical decision-making Suggested that some individual factors –  such as cognitive moral development, nationality and  personal integrity –  are clearly influential Suggested that in terms of recognising ethical problems and actually doing something in response to them, it is situational factors that appear to be most influential Chapter 5 Managing Business Ethics Lecture 5 Overview Discuss the nature and evolution of business ethics management Codes of ethics Current theory and practice regarding the management of stakeholder relationships The development of social, ethical, and environmental accounting, auditing and reporting tools Different ways of organising for the management of business ethics, and critically assess the role of organization culture and leadership Extent to which developments discussed in this lecture represent genuine commitment to  business ethics or sophisticated public relations What is business ethics management? Business ethics management  is the direct attempt to formally or informally manage ethical issues or problems through specific policies, practices and programmes

Typical components of business ethics management Mission or values statements Codes of ethics Reporting/advice channels Risk analysis and management Ethics managers, officers and committees Ethics consultants Ethics education and training Stakeholder consultation, dialogue and partnership programs Auditing, accounting and reporting Evolution of business ethics management Few, if any, businesses likely to use all tools and some do not use any Escalating adoption of most if not all components (US and UK surveys) Change in emphasis concerning the purpose of business ethics management Previously primarily focused on managing employee behaviour Increasing attention to management of broader social responsibilities Setting standards of ethical behaviour Designing and implementing codes of ethics Codes of Ethics Codes of ethics are voluntary statements that commit organizations, industries, or professions to specific beliefs, values, and actions and/or set out appropriate ethical behaviour for employees 4 main types of ethical codes Organizational or corporate codes of ethics Professional codes of ethics Industry codes of ethics Programme or group codes of ethics Prevalence of codes and ethics Increasingly common Substantial rise in usage during 1990s and 2000s 2/3 of large UK firms have some kind of formal ethical code whilst almost all large US firms have a code of ethics (Weaver et al. 1999) Less prevalent in Europe, and in SMEs (Spence and Lozano 2000) Content of codes and ethics: Prevalence of issues found in codes of conduct Critiques of ethical codes Clear prescription for employees means lack of flexibility Difficulty with multiple/novel situations, particularly cross-cultural Vague, generalised statements of obligation PR device Questionable control mechanisms that potentially influence employee beliefs, values and  behaviours „suppress‟ individual moral instincts and emotions in order to ensure bureaucratic conformity and consistency Effectiveness of codes of ethics

Effectiveness of a code is in the implementation and administration Suggestions for successful implementation Maximise participation  of organisation members in development stage to encourage commitment and „buy in‟ (Newton, 1992) Discipline  employees found in breach (Webley 2001) Follow-through  (Treviño et al. 1999) Global codes of ethics Can organizations devise one set of principles for all countries in which they operate? Consider some examples Gift giving in Japan vs. the UK Equal opportunity commitments in India vs. UK MNEs should be guided by 3 principles Respect for core human values Respect for local traditions Belief that context matters when deciding right and wrong Global codes should define minimum ethical standards E.g. OECD Guidelines for Multinational Enterprise, UN Global Compact Managing stakeholder relations Assessing stakeholder importance: an instrumental perspective Instrumental perspective „Stakeholder impact analysis enable a compan y to identify the stakeholders most crucial to its survival and to make sure that the satisfaction of their needs is paramount‟ (Hill and Jones 2001:45) 3 key attributes likely to determine perceived importance o r salience  of stakeholders (Mitchell et al., 1997) Power Legitimacy Urgency Types of stakeholder relationship Challenge Sparring partners One-way support Mutual support Endorsement Project dialogue Strategy dialogue Task force Joint venture or alliance Problems with stakeholder collaboration Resource intensity Culture clash Schizophrenia Uncontrollability Co-optation Accountability Resistance

Assessing ethical performance Areas of assessment Ethical Often a focus on internal management systems Environmental Impact on natural environment Social Broader remit, often including impact on stakeholders Sustainability Focus on triple bottom line „Social accounting‟ as generic term Defining social accounting Social accounting  is the voluntary process concerned with assessing and communicating organisational activities and impacts on social, ethical, and environmental issues relevant to stakeholders Why do organizations engage in social accounting? Both practical and moral reasons. Four main issues: Internal and external pressure Identifying risks Improved stakeholder management Enhanced accountability and transparency Disincentives for social accounting: Perceived high costs Insufficient information Inadequate information systems Lack of standards Secrecy Unwillingness to disclose sensitive or confidential data What makes for „good‟ social accounting? (I) Inclusivity Comparability Completeness Evolution Management policies and systems Disclosure External verification Continuous improvement What makes for „good‟ social accounting? (II) Schemes in place to tackle specific aspects of social accounting: Auditing and certifying Social accountability standards SA 8000 Reporting The Global Reporting Initiative (GRI) Reporting assurance AA1000S Assurance Standard

Organizing for business ethics Formal ethics programmes Informal ethics management: ethical culture and climate Organizations can and should proactively develop an ethical organizational culture… organizations with „ethics problems‟ should take a culture change approach to solving them” (Treviño and Nelson, 2007: 256) Culture change approach (very problematic) Improvements in ethical decision-making have been widely argued to require a managed transformation of the organization‟s values in order to create a „more ethical‟ culture Cultural learning approach (promotes moral imagination) Focus on smaller subcultural groups within the firm Factionalism and dissent in order to promote learning (Starke y 1998) Business ethics and leadership Leaders often said to set ethical tone in organisations “All leadership is value laden” (Grint, 1997:325) Cultural change approach Leader‟s role to articulate and personify the values the organisation aspires to Inspire and motivate employees to follow their lead Cultural learning perspective Role of leadership one of participation and empowerment in order to foster moral imagination and autonomy Ethical behaviour is not to be promoted simply through the promulgation of specific beliefs and  principles, but through facilitating personal moral engagement, dialogue, and choice (Crane, Knights, and Starkey 2008) Summary Business ethics has varying approaches: e.g., in Europe emphasizes an external, socially based orientation rather than concentrating on ethical codes to ensure compliance Question effectiveness of ethical codes Danger of overstating the benefits of business ethics management tools Crucial role for the motivations of the use of these tools, the process of their development, and the implementation and follow-up Chapter 6 Shareholders and Business Ethics Lecture 6 Overview The nature of shareholder relations to the corporation Analysis of the rights and the duties of shareholders Specific ethical problems and dilemmas arising in the relation between companies and their shareholders The ethical implications of globalization on shareholder relations The notion of shareholder democracy and the accountability of corporations to their shareholders and other stakeholders The differences in shareholder roles and corporate governance in various parts of the world Perspectives on how shareholders can influence corporations towards sustainability

Shareholders as stakeholders Understanding corporate governance Crucial problem: separation of ownership and control Peculiarities of corporate ownership Locus of control Fragmented ownership Divided functions and interests Rights and duties in firm-shareholder relations Rights of shareholders The right to sell their stock The right to vote in the general meeting The right to certain information about the company The right to sue the managers for (alleged) misconduct Certain residual rights in case of the corporation‟s liquidation Duties of managers Duty to act for the benefit of the company Duty of care and skill Duty of diligence Corporate governance Corporate governance definition Describes the process by which shareholders seek to ensure that „their‟ corporation is run according to their intentions. It includes processes of goal definition, supervision, control, and sanctioning. In the narrow sense it includes shareholders and the management of a corporation as the main actors; in a broader sense it includes all actors who contribute to the achievement of stakeholder goals inside and outside the corporation Corporate governance: a principal-agent relation Shareholder and stakeholder relations: Different frameworks of corporate governance globally Ethical issues in corporate governance Executive accountability and control (I) A separate body of people that supervises and controls management on behalf of shareholders Dual structure of leadership executive directors:  are actually responsible for running the corporation non-executive directors  are supposed to ensure that the corporation is being run in the interests of the shareholders Anglo-Saxon model: single-tier board European model: two-tier boards, lower tier = executive directors, and u pper tier = „supervisory  board‟ Executive accountability and control (II) The central ethical issue here is the independence of the supervisory, non-executive board members  No directly conflicting interests ensured by: Typically drawn from outside the corporation  No personal financial interest in the corporation Appointed for limited time

Competent to judge the business of the company Sufficient resources to get information Appointed independently Executive remuneration „Fat cat‟ salary accusations E.g. average CEO salary in Britain £6.5m (highest CEO salaries in 2008: Europe, €77m, USA, $84m) E.g. average annual pay rise for CEOs 11% CEO increases outstrip shareholder returns Ethical problems with executive pay: Performance-related pay leads to large salaries that cause unrest within corpo rations Influence of globalisation on executive pa y leads to significant increases Board often fails to reflect shareholder (or other stakeholder) interests Ethical aspects of mergers and acquisitions Acceptable if results in transfer of assets to owner who uses them more productively Central concern is managers who pursue interests not congruent with shareholder interests Executive prestige vs. profit and share price Two ethically-questionable options for managers (Carroll and Buchholtz, 20 08) Seduced with golden parachute for cooperation Greenmailing to secure post-merger job Hostile takeovers –  concern when shareholders do not want to sell Intentions and consequences of mergers and acquisitions Restructuring and downsizing The role of financial markets and insider trading Speculative „faith stocks‟ „dot-com‟ bubble (companies not made any profit but worth billions on the market) Ethical issue: bonds based entirely on speculation without always fully revealing amount of uncertainty Insider trading Insider trading occurs when securities are bought and sold on the basis of material non public information (Moore 1990) Ethical arguments (Moore, 1990) Fairness Misappropriation of property Harm to investors and the market Undermining of fiduciary relationship Insider trading can erode trust in the market in the long term; hence its illegality The role of financial professionals and market intermediaries Two crucial professions: Accountants & credit ratings agencies Task is to provide a „true and fair view of the firm –  i.e. bridge informational asymmetry Five main problematic aspects of financial intermediary‟s job: Power and influence in markets Conflict of interest (e.g. cross-selling) Long-term relationships with clients Size of the firm Competition between firms (danger of corner-cutting)

Private equity and hedge-funds Rise of private equity and hedge funds exacerbate issues around transparency and shareholder control Most general concern: There are no longer many obligations for public information about a company once it has  been taken private Hedge funds do not have to report to regulators in the same way as other investment firms Don‟t even have to report fully to own investors Suggestion is this lack of transparency hides systemic risk Shareholders and globalisation Global financial markets Global financial markets  are the total of all physical and virtual (electronic) places where financial titles in the broadest sense (capital, shares, currency, options, etc.) are traded worldwide Ethical issues raised: Governance and control  National security and protectionism Speculation (see slide on Tobin tax) Unfair competition with developing countries Space for illegal transactions (see slide on money laundering) Reforming corporate governance around the globe Some important shortcomings in present systems of governance in man y countries Main tool in Europe is codes of governance, dealing with: Size and structure of board Independence of supervisory or non-executive directors Frequency of supervisory body meetings Rights and influence of employees in corporate governance Disclosure of executive remuneration General meeting participation and proxy voting Role of other supervising and auditing bodies Legal basis and power of these codes varies dramatically And the crisis in late 2000s has seen deeper state involvement US response –  Sarbanes-Oxley The Tobin Tax Effort to impose control on global markets “Tobin Tax” –  tax on foreign currency transactions  Not make impossible but impede international currency speculation „Robin Hood Tax‟ Two main problems with tax: Global enforcement Does not differentiate between desirable and undesirable transactions Combating global terrorism and money laundering Deregulated social spaces are invitation for illegal financial activities Money laundering estimated up to $1.5 trillion/year IMF recommendations for banks to help reduction of money laundering „Know your customer‟ Prevent criminals getting control of key positions in banks Identifying and reporting unusual/suspicious transactions

Raise general awareness for regulators and staff Shareholders as citizens of the corporation Shareholder democracy Idea that a shareholder of a company is entitled to have a say in corporate decisions Supported by legal claim based on property rights Can shareholders be a force for wider social accountability and performance? Three issues to consider: Scope of activities Adequate information Mechanism for change Two approaches to „ethical‟ shareholding Shareholder activism Buy shares in company for right to speak at the AGM Voice concern and challenge the company on allegedly unethical practices Possibility of broad media attention by „disrupting‟ the meeting Issues: Gets involved with „the enemy‟ Only an option for reasonably wealthy individuals

Socially responsible investment (SRI) Ethical investment  is the use of ethical, social and environmental criteria in the selection and management of investment portfolios, generally consisting of compan y shares Ethical investment Examples of positive and negative criteria for ethical investment Negative criteria Alcoholic beverages production and retail Animal rights violation Child labour Companies producing or trading with oppressive regimes Environmentally hazardous products or processes Genetic engineering  Nuclear power Poor employment practices Pornography Tobacco products Weapons Positive criteria Conservation and environmental protection Equal opportunities and ethical employment practices Public transport Inner city renovation and community development programmes Environmental performance Green technologies Ethical Investment

Main concerns with SRI movement Quality of information Most information provided by firms and is difficult to verify Dubious criteria See table in previous slide Too inclusive 90% of Fortune 500 firms are held by at least 1 SRI fund Strong emphasis on returns: Usually, SRI fund managers screen for performance first, then select using ethical criteria Firms taking longer-term perspectives and thus sacrificing short-term profitability therefore unlikely to be included (See Vogel, 2005) Shareholding for sustainability The Dow Jones Sustainability Group Index „Best-in-class‟ approach Family of indexes comprising different markets and regions (e.g. Asia -Pacific sub-index added in 2009) Companies accepted into index chosen along following criteria: Environmental (ecological) sustainability Economic sustainability Social sustainability Criticisms of index: Depends on data provided by the corporation itself Questionable criteria used by index Focuses on management processes rather than on the actual  sustainability of the company or its products Rethinking sustainable corporate ownership: alternative models? Government ownership: Part of the landscape in many parts of the world. Resurgent in the wake of the late-2000s financial crisis (esp. banks and cars). Family ownership Families may have longer-term goals, but may not treat stakeholders any better than MNCs Co-operative ownership Hybrid businesses, not owned by investors or managers Owned and democratically controlled by workers or customers  Not set up to make profit but to meet the needs of members Spanish Mondragon co-operative has made a striking contribution to sustainability while staying highly profitable Summary Principal-agent relationship between managers and shareholders Divergent interests and unequal distribution of information institutionalises some fundamental ethical conflicts in governance Shareholders have considerable opportunities to use their power over supply to influence corporations to behave more ethically

Shareholders can play a role in driving corporations towards enhanced sustainability by their investment decisions at the stock market Chapter 7 Employees and Business Ethics Lecture 7 Overview The specific role of employees among the various stakeholder groups Core ethical topics of employees‟ rights and duties Ethical issues and problems faced in business-employee relations The duties of employees and the company‟s involvement in enabling employees to live up to their duties The notion of corporate citizenship in relation to employees Basic issues and problems of managing employees in the context of globalization Explore the notion of corporate citizenship in relation to employees The implication of sustainability for workplaces and for specific working conditions Ethical issues in the firm-employee relation Management of human „resources‟: an ethical problem between rights and duties The term „human resource management‟ and its implications have been a subject of intense debate in business ethics Humans treated as important and costly resource Consequently, employees are subject to a strict managerial rationale of minimising costs and maximising the efficiency of the „resource‟ Rhetoric and reality in HRM  Rights of employees as stakeholders of the firm  Duties of employees as stakeholders of the firm Discrimination Discrimination in the business context occurs when employees receive preferential (or less  preferential) treatment on grounds that are not directly related to their qualifications and  performance in the job Managing diversity prominent feature of contemporary business Extensive legislation Institutional discrimination: discrimination deeply embedded in business Women in top management positions Female Directors in FTSE 100 Companies 2000-2008 Sexual and racial harassment Issues of diversity might be exploited to inflict physical, verbal, or emotional harassment Regulation reluctant Blurred line between harassment on one hand and „joking‟ on the other Influenced by contextual factors such as character, personality, and national culture Companies increasingly introduced codes of practice and diversity programmes (Crain and Heischmidt 1995) Equal opportunities and affirmative action How should organizations respond to problems of discrimination? Equal opportunity programme

Generally targeted at ensuring procedural justice  is promoted Affirmative action (AA)  programmes: deliberately attempt to target those who might be currently under-represented in the workforce Recruitment policies Fair job criteria Training programmes for discriminated minorities Promotion to senior positions Reverse discrimination In some cases, people suffer reverse discrimination  because AA policies prefer certain minorities Justification for reverse discrimination Retributive justice : past injustices have to be „paid for‟ Distributive justice : rewards such as job and pay should be allocated fairly among all groups (Beauchamp 1997) Stronger forms of reverse discrimination tend to be illegal in man y European countries Employee privacy Four different types of privacy we may want to protect (Simms 1994) Physical privacy Social privacy Informational privacy Psychological privacy Health and drug testing Highly contested issue Three main issues Potential to do harm Causes of employee‟s performance Level of performance Despite these criticisms, such tests have increasingly come common in the US Electronic privacy and data protection Increasingly relevant as technology advances and electronic „life‟ becomes more important Computer as a work tool enables new forms of surveillance Time and pace of work Usage of employee time for private reasons E-mail and internet Issue of privacy in situations where data is saved and processed electronically Data protection Due process and lay-offs Ethical considerations in the process of downsizing Right to know  well ahead of the actual point of the redundancy that their job is on the line Compensation packages  employees receive when laid off Employee participation and association Recognition that employees might be more than just human „resources‟ but should also have a certain degree of influence on their tasks, job environments, and company goals – right to participation Financial participation  –  allows employee share in the ownership or income of the corporation

Operational participation  can include a number of dimensions: Delegation Information Consultation Codetermination Evolution of trade union membership Working conditions Right to healthy and safe working conditions one of the very first ethical concerns for emplo yees Dense network of health, safety and environmental (HSE) regulation Main issue is enforcement and implementation  Newly emergent HSE issues relate to changing patterns of work Ethical issues in the context of: Excessive working hours and presenteeism Flexible working patterns Excessive working hours and presenteeism Excessive work hours Thought to impact the employee‟s overall state of physical and mental health

„Presenteeism‟  phenomenon of being at work when you should be at home due to illness or even just for rest and recreation (Cooper 1996) Flexible working patterns Another way of saying that management can do what it wants? (Legge, 1998) „Non-standard‟ work relationships Part-time work, temporary work, self-employment and teleworking (Stanworth 2000) Less secure legal status for periphery workers Potential for: Poorer working conditions Increased insecurity Lower pay Exclusion from training and other employment benefits Fair wages The basis for determining fair wages is commonly the expectations  placed on the employee and their performance  towards goals  Note discussion about excessive compensation for executives after the stock market collapse of 2008 Problems of performance-related pay (PRP) Risk salaries and benefits become less secure Representation individualized bargaining Freedom of conscience and freedom of speech in the workplace  Normally guaranteed by governments Situations in business where freedom of speech might face certain restrictions Speaking about „confidential‟ matters related to the firm‟s R&D, marketing or accoun ting plans

Usually unproblematic, since most rational employees would find it in their own best interests to comply with company policy Some cases where those restrictions could be regarded as a restriction of employee‟s rights Whistleblowing –  can involve considerable risk The right to work Fundamental entitlement of human beings established in the Declaration of Human Rights The right to work in a business context cannot mean that every individual has a right to be employed The right to work should result in every individual facing the same equal conditions in exerting this right Employing people worldwide The ethical challenges of globalization  National culture and moral values Different cultures will view employee rights and responsibilities differently This means that managers dealing with employees overseas need to first understand the cultural  basis of morality in that country Raises the question of whether it is fair to treat people differently on the basis of where they live Relativism vs. absolutism Absolutism : ethical principle must be applicable everywhere Relativism : view of ethics must always be relative to the historical, social and cultural context The „race to the bottom‟ Many critics argue that MNCs play a role in changing  standards in countries Globalisation allows corporations to have broad range of choice of location Developing countries compete to attract foreign investment Large investors tend to choose country with most „preferable‟ conditions Lowest level of regulation and social provision for employee Leads to „race to the bottom‟ in environmental and social standards Argument that MNEs have a duty to promote minimally just social & political institutions where they operate if these do not exist, because of duty to avoid harm (Nienhê Hsieh, 2009) Migrant labour and illegal immigration Growing mobility of workers is a recent phenomenon of globalization Typically north-south, can also be in other regions (e.g. UAE) Workers can also be attracted to particular industries in areas where there is no local labour (e.g. mining)  Numerous ethical issues here. Examples: Migrant labour often leads to questionable social phenomena (e.g. drug use) Migrants are often from poor countries; willing to accept pay & working conditions normally unacceptable in host country Migrant workers are often in a country illegally (but a record of employment may later be the basis for legal residency) The corporate citizen and employee relations The corporate citizen and employee relations in a global context Anglo-American and European models: differences

Continental Europe takes interest of employees into account to a greater degree than the Anglo-American model „Co-determination‟ In developing countries Level of regulation (or at least enforcement) is often poor, thou gh employee protection often strengthens over time (e.g. China‟s 2008 Labour Co ntract Law) Corporate actions therefor e often voluntary „good citizenship‟ Ruggie‟s framework for responsibility in human rights  Protect (states‟ duty to prevent abuses)  Respect (firms‟ duty to respect human rights)  Remedy (general duty to create systems to remedy abuses) Towards sustainable employment Re-humanized workplaces „Alienation‟ of the individual work in the era o f industrialised mass production Brought tremendous efficiencies and material wealth, but have also created the prospect of a dehumanised and deskilled workplace Attempts to re-humanize the workplace „empowering‟ the employee „job enlargement‟ „job enrichment‟ Success of such schemes contested Suggested that „humanized‟ approach might be more appropriate and effective in some cultures (e.g. Scandinavia) than others Wider employment Large numbers of unemployed people becomes the norm in many countries due to mechanisation This threatens: Right to work Social fabric of particular communities  New technologies herald the „end of work‟? (Rifkin 1995) From sustainability perspective: ensure that what work exists is shared out mo re equitably Green jobs „Green jobs‟ are: In industries making environmentally-friendly products Workplace & organization of labour is also more environmentally sustainable Gained attention in late 2000s; part of broader debate on restructuring economies to be more sustainable Examples of specific measures: Car-pooling Paperless office Video-conferencing rather than business travel Home-based teleworking Potential benefits are social, economic and ecological Summary Discussed the specific stake that employees hold in their organizations Discovered how deep the involvement of corporations with employees‟ rights can be

Corporate responsibility for protection and facilitation of these rights is particularly complex and contestable when their operations become more globalized Considered corporate citizenship and employee relations in different contexts Chapter 8 Consumers and Business Ethics Lecture 8 Overview Discuss the specific stake that consumers have in corporate activity Outline the ethical issues and problems faced in b usiness-consumer relations Examine issues in context of globalization Arguments for more responsible marketing practices Develop notion of corporate citizenship in relation to consumers Examine the challenges posed by sustainable consumption Consumers as stakeholders (I) Commonplace argument that businesses are best served by treating their customers well So why continued ethical abuses of consumers and poor reputation of marketing and sales  professions? Examples of organizations accused of treating customers in a questionable manner: Multinational drug companies Fast food and soft drink companies Banks and credit card companies Mobile phone companies Technology companies Schools Consumers as stakeholders (II) Consumer rights  can be seen as: inalienable entitlements to fair treatment when entering into exchanges with sellers. They rest upon the assumption that consumer dignity should be respected, and that sellers have a duty to treat consumers as ends in themselves, and not only as means to the end of the seller. Debate over what constitutes fair treatment In the past, consumer rights based on caveat emptor  But Caveat emptor  eroded by changing expectations & consumer laws Ethical issues and the consumer Ethical issues, marketing and the consumer Ethical issues in marketing management –  product policy At the most basic level, consumers have a right to products and services which are safe, efficacious, and fit for the purpose for which they are intended Manufacturers ought to exercise due care in establishing that all reasonable steps are taken to ensure that their products are free from defects and safe to use (Boatright, 2009: 295) Consumers‟ right to a safe product is not an unlimited right  Safety also a function of the consumer and their actions and precautions Ethical issues in marketing management –  marketing communications (I) Criticisms of advertising broken down into two levels

Individual Concerned with misleading or deceptive practices  that seek to create false beliefs about specific products or companies in the individual‟s consumers‟ mind Social Concerned with the aggregate social and cultural impacts , such as promoting materialism

Ethical issues in marketing management –  marketing communications (II) Misleading and deceptive practices Marketing communications aimed to:  Inform consumers about goods and services  Persuade consumers to purchase “Deception occurs when a marketing communication either creates, or takes advantage of, a false  belief that substantially interferes with the ability of people to make rational consumer choices” (Boatright, 2009: 285) The UK‟s Advertising Standards Authority says ads should be “legal, decent, honest and truthful” Ethical issues in marketing management –  marketing communications (III) Social and cultural impact on society Objections that marketing communications: Are intrusive and unavoidable Create artificial wants Reinforce consumerism and materialism Create insecurity and perpetual dissatisfaction Perpetuate social stereotypes Such criticisms have been common for at least the last 30 years Ethical issues in marketing management –  pricing Pricing issues are central to the notion of a fair exchange between the two parties, and the right to a fair price  - key rights of consumers as stakeholders 4 types of pricing practices where ethical problems may arise: Excessive pricing Price fixing Predatory pricing Deceptive pricing Ethical issues in marketing management –  distribution Concerned with relations between manufacturers and firms, and firms and market Primary concern is product supply chain Example: retailers demanding „slotting fees‟ from manufacturers in order to stock their  products Dealt with in detail next chapter Ethical issues in marketing strategy  –  vulnerable customers Criticisms when there is a perceived violation of the consumers right to be treated fairly (duty of care): Targeting vulnerable consumers Consumers may be vulnerable because;

Lack sufficient education or information Easily confused or manipulated due to old age and senility Are in exceptional physical or emotional need Lack the necessary income Too young Perceived harmfulness of the product Examples: cigarettes and alcohol Here, the focus shifts from rights/duties to consequences Ethical issues in marketing strategy  – customer exclusion Takes variety of forms Access exclusion Condition exclusion Price exclusion Marketing exclusion Self-exclusion Ethical issues in market research Main issue is possible threats posed to the consumer‟s right to privacy Recent areas of concern: Personal information available online Example: Phorm‟s advertising targeting service, which British Telecom trialled without consent Use of genetic testing results by insurance companies Predict likelihood of an individual‟s genetic predisposition to certain conditions and illnesses „genetic discrimination‟? Globalisation and consumers The ethical challenges of the global marketplace Issues around marketing in a global marketplace Globalization has brought a new set of problems and issues relevant to consumer stakeholders Different standards of consumer protection Consumer protection varies widely in terms of government regulation and company standards Example of tobacco Exporting consumerism and cultural homogenization Global brands‟ huge success has led to increasing concerns over standardization and uniformity Considerable debate around role of advertising in promoting consumerism in emerging and transitional economies The role of markets in addressing poverty and development Globalization also raises prospect of firms targeting products to low income consumers „Bottom of the pyramid‟ concept Examples of successful initiatives: Microcredit institutions (e.g. Brazil) High nutrition yoghurt company (Bangladesh) One Laptop Per Child Criticism

Bottom of the pyramid is a mirage: profit opportunities limited Social purpose and CSR probably more important than profit motive in developing inclusive markets Consumers and corporate citizenship Consumer sovereignty and the politics of purchasing Consumer sovereignty Concept suggests that under perfect competition, consumers drive market Two ethical limitations based on fairness Consumer sovereignty –  customer is king Consumer sovereignty has three elements (Smith, 1995) Consumer capability Information Choice How is consumer sovereignty to be assessed? Consumer sovereignty test Consumer sovereignty test Ethical consumption Ethical consumption is the conscious and deliberate decision to make certain consumption choices due to personal moral beliefs and values Recent 51-market survey on consumer attitudes: 70% of global consumers said their purchase decision could be influenced by a product supporting a worthy cause But socially-desirable answers may not correspond to behaviour Consumer activism on increase –  positive Downside of ethical consumption Motives of corporations will be primarily economic rather than moral Consumers may decide they no longer want to or can afford to pay extra for these ethical „accessories‟ If purchases are „votes‟ then rich get more po wer than poor  Sustainable consumption What is sustainable consumption? Sustainable consumption is: „the use of goods and services that respond to basic needs and  bring a better quality of life, while minimising the use of natural resources, toxic materials and emissions of waste and pollutants over the life-cycle, so as not to jeopardise the needs of future generations‟ (European Environment Agency definition) The challenge of sustainable consumption Steps towards sustainable consumption Producing environmentally responsible products e.g. Eco-labels are important Product recapture See Figure, next slide Service replacements for products Selling (e.g.) mobility rather than cars, or leasing photocopiers Product sharing Examples: car-sharing, washing-machine-pooling Reducing demand Example of China‟s ban on free plastic bags

Implementing the polluter pays principle to create financial incentive for lower consumption Product recapture From a linear to a circular flow of resources Summary Chapter 9 Suppliers, Competitors and Business Ethics Lecture 9 Overview Show how other businesses –  suppliers and competitors –  exist in mutual interdependence with a given organization Describe the ethical issues and problems that arise in an organisation‟s dealings with its suppliers and competitors Outline how globalization reframes these problems Discuss whether corporations should assume some degree of extended responsibility for the ethics of their suppliers Assess the arguments suggesting that attention to business interrelationships and the network economy may contribute to more sustainable business models Suppliers and competitors as stakeholders Suppliers as stakeholders A stakeholder  of a corporation is an individual or a group that either is harmed by or benefits  from the corporation or whose rights can be violated , or have to be respected , by the corporation (Evan and Freeman 1993) Organisations and their suppliers can be seen as mutually dependent Competitors as stakeholders Forgotten stakeholders? (Spence et al. 2001) Legal rights (e.g. not influencing other‟s pricing) Moral claims (e.g. right to fair play) So, businesses should not be seen as isolated islands of economic activity, but as actors operating within a web of other businesses, bound by mutual interests and interlinked flows of resources and rewards Firms thus best understood as part of industrial network

Supplier relationship as part of an industrial network Ethical issues and suppliers Ethical issues (I) Misuse of power Resource dependence theory can help understand relative power of buyer and seller The question of loyalty Doesn‟t fit easily with economic view of firm, but can create mutually-beneficial outcomes Preferential treatment Big challenge: procedural justice approach can help

Conflicts of interest A conflict of interest occurs when a person or organization‟s obligation to act in the interests of another is interfered with by a competing interest that may obstruct the fulfilment of that obligation Ethical issues (II) Gifts, bribes and hospitality Consider the intention of the gift giver Look at the impact on the receiver Focus on the perception of other parties Many large organizations have a formal purchasing code of ethics Guidelines provided by professional bodies such as the International Chartered Institute of Purchasing and Supply Ethics of negotiation (I) Ethics and negotiation –  oil and water? Here are ten popular negotiating actions, all of which can be challenged on ethical grounds (Reitz et al.,1998): Lies Puffery Deception Weakening the opponent Strengthening one‟s own position  Non-disclosure Information exploitation Change of mind Distraction Maximisation Ethics of negotiation (II) A more ethical approach to negotiating should steer clear of these tactics. This is because: It is the right thing to do Such practices incur costs for the negotiator. These are: Rigid negotiating –  encourages narrow tactics Damaged relationships –  risk of enmity Sullied reputation –  making future bargaining troublesome Lost opportunities –  tends to prevent progressive discussions that open up new issues Basic idea: negotiation is not so much zero-sum as a chance to build mutually-beneficial relationships Ethical issues and competitors Problems of overly aggressive competition Intelligence gathering and industrial espionage create ethical questions when Questionable tactics Private or confidential information Purpose for which information gathered is against public interest „Dirty tricks’  Negative advertising Stealing customers

Predatory pricing Sabotage Anti-competitive behaviour Problems of insufficient competition Collusion and cartels Select groups of competitors band together in a cartel or trading group to fix prices and other trading arrangements for their own mutual benefit Abuse of dominant position E.g. Microsoft  Globalization, suppliers, and competitors The ethical challenges of global business networks The ethical challenges of global business networks Reshaping of ethical consideration with suppliers and competitors brings up: Different ways of doing business Impacts on indigenous businesses Differing labour and environmental standards Extended chain of responsibility Different ways of doing business (I) Different ways of doing business (II) Impacts on indigenous businesses Size, power and political influence of MNCs often means that they enjoy considerable cost and other advantages compared to local competitors Offer employment alternatives to people who would otherwise start their own business (Spencer, 2008: 341) Exposure to the competition of a major multinational can severely threaten the business of indigenous competitors (Klein, 2000) Differing labour and environmental standards Western firms increasingly sourced through global supply chains „Race to the bottom‟ occasioned by demand by MNCs for lower -cost production in developing countries Ethical problem = lower costs often accompanied by „sweatshop‟ conditions  poorer labour conditions less environmental protection lower attention to health and safety Extended chain of responsibility Shifts towards global supply and competition mean that individual firms appear to be faced with  prospect of an extended chain of responsibility  No longer acceptable to argue that the ethics of a firms suppliers or a firms impact on its competitors was simply not any of its business (see Emmelhainz and Adams 1999) The corporate citizen in the business community Ethical sourcing and fair trade Ethical sourcing Ethical sourcing  is the inclusion of explicit social, ethical, and/or env ironmental criteria into supply chain management policies, procedures and programmes

Suppliers‟ willingness to comply or resist pressure to certify (e.g. ISO 14001) is strongly determined by the type of relationship they have to the companies that purchase from them (Delmas and Montiel 2009) Suppliers with a high dependence on their customers are more likely to comply as are relatively new entrants to the industry For suppliers, the public act of gaining ethical certification can a ct as a way of reducing information asymmetries between themselves and potential buyers Business-business regulation Ethical sourcing as business-business regulation Pressure exerted by powerful corporate customers to comply with ethical sourcing guidelines and criteria constitutes strong and often very effective regulation of supply chain members (Locke and Romis, 2007) Strategies of business-business regulation Disengagement Setting of clear standards for suppliers and a means for assessing compliance with those standards Failure to meet standards in short- medium term will result in disengagement by the company Engagement Rely on longer-term „aims‟ together with incremental „targets‟ in order to foster a step by-step approach to improving standards. Firm likely to work with their suppliers to achieve improvements Fair trade Fair trade is a system aimed at offering „the most disadvantaged produ cers in developing countries the opportunity to move out of poverty through creating market access under beneficial rather than exploitative terms. The objective is to empower producers to develop their own  business and wider communities through international trade‟ (Nicholls & Opal 2005: 6) Aims of fair trade movement Foster the protection and empowerment of growers Encourage community development by guaranteeing minimum prices and conditions In 2008, Fair Trade sales grew 22% (est. €2.9Bn) But success could put pressure on ethical standards Challenges also from recruiting employees with mainstream business skills (Davies & Crane, 2010) Comparison: Fairtrade & New York Prices for Cocoa, 1994-2009 Sustainability and business relationships Towards industrial ecosystems? From supply chains to supply loops Supply loops are product end-of-life management strategies that fulfil two criteria (Geyer and Jackson, 2004): They divert end-of-life products from landfill or incineration by collecting them for economic value recovery The reprocessing of these end-of-life products produces secondary resources that replace  primary resources in forward supply chains To proponents, such closed loop supply chain models have are not only waste reducing, but eliminate the very concept of waste (Lovins, Lovins, and Hawken 1999).

Also, important potential sources of value recovery Industrial ecosystems Kalundborg industrial ecosystem Summary Discussed the stake held by other companies in a corporation Argument that there were issues of an ethical nature that went well beyond the legal protection of fair competition Globalisation substantially increased scope of these problems suggesting expanded responsibilities for corporations over their operations Business relationship also increasingly seen as one of main levers for e ffecting greater attention to social and environmental problems Chapter 10 Civil Society and Business Ethics Lecture 10 Overview Show how the role played by various types of civil society organizations in society constitutes them as important stakeholders of corporation Examine the tactics that such groups might employ towards corporations to achieve their  purposes Discuss the impacts of globalization on the nature and extent of the role played by civil society towards corporations Discuss the appropriate relationships between business and civil society Assess the role of civil society in providing for enhanced corporate sustainability Civil Society as „third sector‟ Civil society organizations Civil society organizations  include a whole plethora of pressure groups, nongovernmental organizations, charities, religious groups, and other actors that are neither business nor government organizations, but which are involved in the promotion of certain interests, causes, and/or goals Diversity in CSO characteristics Civil society organizations as stakeholders Civil society organizations as stakeholders The „growth in the number, power and influence of CSOs represents one of the most important societal developments in the past twenty years, in terms of how the dynamics of public debates and government policies concerning corporate behaviour are changing‟ (Yaziji and Doh, 2009: 16) The stake held by CSOs is largely one of: Representing the interests of individual stakeholders Representing the interests of non-human stakeholders Different types of CSOs Degrees of trust in different types of organization in selected glob al regions Ethical issues and CSOs Recognizing CSO stakes Many CSO groups tend to „self-declare ‟ themselves as stakeholders in a particular issue (Wheeler et al. 2002)

Issuing statements Launching campaigns Initiating some kind of action towards the corporation Self-declaring does not necessarily lead to recognition Ignoring CSOs may have detrimental long-term consequences CSO tactics Indirect action Sometimes criticised for providing misleading information Violent direct action Often illegal Tends to generate the most publicity Is this action „civil‟ at all?  Non-violent direct action Demonstrations and marches Protests Boycotts Occupations  Non-violent sabotage and disruption Stunts Picketing Boycotts A boycott is an attempt by one or more parties to achieve certain objectives by urging individual consumers to refrain from making selected purchases in the marketplace Four different purposes for boycotts: Instrumental boycotts Catalytic boycotts Expressive boycotts Punitive boycotts Some well-known boycotts CSO accountability CSO stakeholders might be said to include: Beneficiaries Donors Members Employees Governmental organizations Other CSOs General public (especially those who support their ideals) Recently, growing number of organizations similar to CSOs being initiated within business Accountability of CSOs to supposed beneficiaries tends to raise most debate Force agendas on beneficiaries without understanding needs Limited involvement of beneficiaries in decision making CSO donor interests receive higher priority Lack of effective mechanisms for beneficiaries to feedback on CSO performance Globalization and civil society organizations

Globalization and civil society organizations Globalization reshaping relations between corporations and CSOs: Engagement with overseas CSOs Potentially new set of unfamiliar groups Many developing and transitional economies lack strong and institutionalized civil society (e.g. China) Global issues and causes Problems that transcend national boundaries (e.g. climate change, water conservation, human rights) Critique of globalization Globalization of CSOs „the resistance will be as transnational as capital‟ Global civil society Corporate citizenship and civil society Charity, collaboration, or regulation? Charity and community involvement Starting point for a consideration of business involvement in civil society One-way support  –  benefits communities and civil action but does not usually allow them much voice in shaping corporate action. Types of involvement: Corporate foundations to channel philanthropy Employee volunteering. This allows achievement of the following aims (Muthuri, Matten, and Moon 2009): Making a meaningful social contribution Contributing to the development of their human resources Enhancing the firm‟s reputation Increasing employee morale Building „social capital‟ within the community Business-CSO collaboration Closer and more interactive relations between civil society and corporations Sometimes called social partnerships Limitations of business-CSO collaboration Difficulties managing relations between such culturally diverse organisations Difficulties ensuring consistency and commitment  Partnership appear to mask continuing hostility and/or power imbalances between the „partners‟ The question of power imbalance The distribution of the benefits  of partnerships CSO independence Some examples of business-CSO collaborations Drivers towards business-CSO collaboration Social enterprise The escalating number of CSO alliances with businesses suggests an increased attention in the sector to using market-based solutions to address social problems Venture Philanthropy, also called philanthrocapitalism application of venture capital techniques to grant making (Moody 2008)

Social enterprise Has developed since the 1990s  Novel way of embedding dual social and economic goals into the nature of organizations: social enterprises are designed to address social problems from the outset Key differences between social enterprise, CSOs & corporations Problems with social enterprise Compromise of social mission Demands of the marketplace can lead to „mission drift‟ Moral legitimacy The more business-like social enterprises become, the less moral legitimacy they ma y have for key stakeholders Escalation of risk Social enterprise tends to emphasise risk taking and innovation which can pose threats to essential services and clients Prioritisation of profitable markets The need for sustainable revenue encourages a focus on potentially profitable social goods and services, rather than unprofitable areas where clients might be more needy Civil Regulation Civil regulation is the ability and power of CSOs to shape, influence or curb business practice Focus on relations and outcomes Key drawback is that regulation is voluntary Key points Civil society can act as a conduit through which individuals citizens can exert some kind of leverage on, or gain a form of participation in, corporate decision-making and action CSOs are now part of systems or regimes of „global governance‟ (e.g. Vogel 2008) Civil society, business, and sustainability Balancing competing interests Civil society: wide variety of disparate actors promoting different issues Business must take account of these different issues simultaneously e.g. energy industry –  wind power Groups supporting wind power as clean source of renewable energy that supports local areas financially Groups against wind power because they „despoil‟ the countryside This is a battle of green vs. green (Lynas, 2008) Fostering participation and democracy “Organizations…that affect you and your community, especially when the y affect the material foundations of your self-determination, must be able to be influenced by you and your community…What are required are new forms of democratic governance so that people can determine their own futures in a sustainable environment” (Bendell, 2000:249) Summary Discussed the role that civil society has played in business ethics Taken a fairly broad definition of what constitutes civil society The representational nature of CSO stakes makes their claim rather more indirect than for other constituencies

Gradual shift in the nature of business-CSO relations from primarily confrontational to a more complex, multifaceted relationship that still involves confrontation, but also charitable giving, collaboration and aspects of civil regulations Chapter 11 Government, Regulation, and Business Ethics Lecture 11 Overview The specific stake that governments have in corporate activity The ethical issues and problems faced in business-government relations The shifts in these issues and problems in context of globalization Further develop the notion of corporate citizenship by analysing the changing role of business and CSOs Challenges posed by sustainability to business-government relations and show the importance of strong governmental regulation for achieving potentially sustainable solutions Government as a stakeholder Defining government, laws, and regulations Government variety of institutions and actors at different levels that share a common power to issue laws Laws serve as a codification into explicit rules of the social consensus about what a society regards as right and wrong Regulation rules that are issued by governmental actors and other delegated authorities to constrain, enable, or encourage particular business behaviours. Regulation includes rule definitions, laws, mechanisms, processes, sanctions, and incentives Government as a stakeholder of business Gover nment as a representative of citizens‟ interests Unlike many other stakeholders, government in principle represents an entire community since it is elected by the citizens of a certain town, region, country or even continent In this role as the elected representative of citizens’ interests Defines the conditions for the licence to operate of business Restricting business Enabling business Debate about the degree of governmental responsibility for a functioning economy Laissez-faire vs. forceful role in industrial policy Government as an actor (or group of actors) with interests of its own Governments have a self-interest to be re-elected Governments very dependent on business Governments also compete with business Ethical issues in the relation between business and government Identifying the basic problems and issues: legitimacy, accountability and modes of influence Main source of ethical problems stems from fiduciary relation to society in general Government therefore in bipolar situation

Legitimacy of business influence Business can have a significant influence on the implementation and direction of governmental  policies. It is therefore to no surprise that the issue of „public sector ethics‟ has gained enormous momentum (Dobel 2007). The main ethical consideration arising from this situation is twofold legitimacy of business influence; accountability. Is power and political influence of business leaders a threat to democracy? To what degree is it legitimate for business to have an influence in politics? Accountability to the public One may contend that since the government acts as a representative of society‟s interests, the  public has a right to be informed about governmental decisions with other constituencies (such as  business), and be able to determine whether it is acting in its interests or not Although both parties are able to influence each other, the main concerns for business ethics are where business has influence on government Modes of business influence on government  Numerous ways that business can influence government Oberman (cited in Getz 1997:59) distinguishes among different ways, using following criteria: Avenue of approach to decision-maker Direct indirect Breadth of transmission Public  private Content of communication Information orientated Pressure orientated Business influence on government Lobbying Lobbying  represents a direct, usually private attempt by business actors to influence governmental decision-making through information provision and persuasion. It is considered a weak form of influence (McGrath 2005) Different types of lobbying: Atmosphere setting Monitoring Provision of information to policy-makers Advocacy and influencing Application of pressure Party financing and individual conflicts of interest Donations to parties by business can raise conflict of interest  problems Prospect of preferential treatment The situation is a dilemma: having good relations with political parties seems necessary, but  party financing has dangers It gains influence  but it could severely harm the company‟s image and perhaps encourage questionable  behaviour on the part of employees

Overlap of posts between business and government „Revolving doors‟ common globally (e.g., US, Europe, J apan) This raises substantial conflicts of interest Corruption of governmental actors by business Corruption is the abuse of entrusted power for private gain (Transparency International) Main issue of government corruption in relation to business is activities where private firms shape the formulation, implementation, or enforcement of public policies or rules  by payments to public officials and politicians State capture is a situation where private firms shape the formulation of regulation by payments to public officials and politicians Where state capture becomes a „universal law‟ (Kant), a normally functioning economy  becomes nearly impossible 2008 Corruption Perception Index for selected countries  Note: Score relates to perceptions of the degree o f corruption among government officials as seen by business people and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt) Source: Taken from Transparency International Corruption Perception Index, 2004 (www.transparency.org)

2008 Corruption Perception Index for selected countries Ethical issues in the context of privatization and deregulation Privatization profits Key issue is a fair price Citizens turned consumers Economic basis for decisions, rather than political  Natural monopolies Can lead to over-charging or delivering poor quality PPPs, Public-private-partnerships Private sector profit-maximization tends to dominate at the expense of qu ality and effectiveness for citizens Globalization and business-government relations Globalization and business-government relations Globalization defined as “the progressive eroding of the relevance of territorial bases for social, economic, and political activities, processes, and relations” British political scientist Anthony McGrew has described this in terms of a transition from a traditional to a global context, which he calls „the post-Westphalian‟ setting (Held and McGrew 2000) From the national to the global context When globalisation deterritorializes social, economic and political action, the significance of these nation states is weakened. This transition is summarized as: Society Holder of political power Manifestation of political activity

Addressee of regulation Intensity of regulation Democratic control of political power Globalization, government, and business: changing context Globalization, government, and business: changing roles Business as an actor within the national context (Westphalian setting) Businesses are still located within nation states and they are therefore still subject to national law, which we have called imperative regulation Problematic: Situations where business becomes an actor in authoritarian and oppressive regimes Business as an actor in the global context (post-Westphalian setting) On a global level, corporation assume a more dominant role while governments –  bound by their confinement to territorial boundaries –  have only limited influence beyond national boundaries Result is so-called „race to the bottom‟ Business-government relations in international trade regimes Several transnational government institutions have significant impact on business Regional bodies: EU, NAFTA, ASEAN EU is particularly significant, due to its strong legislative powers Global players: WTO or World Bank Role of these bodies is to enable trade and exchange of goods and services Double-edged sword: They can enable access to cheap labour and larger markets But the same institutions increase competition and in some ways limit business Corporate citizenship and regulation Business as key player in the regulatory game Corporate citizenship and regulation:  business as key player in the regulatory game Debate over how to improve rulemaking Business involvement through self-regulation or „reflexive regulation‟ and corporatism Reasons for new forms of regulation: Encouragement of a proactive approach from industry And the hope/assumption of Cost-effectiveness Faster achievement of objectives Examples of regulatory outcomes on different levels in a multi-actor setting Governments, business and sustainability Global climate change legislation and business responses: Support vs. obstruction The debate on climate change regulation has been a key political arena of sustainability CO2 reductions represent a big threat for some industries Result: Global Climate Coalition, to lobby against regulation Variable success (and the coalition has been disbanded) In Europe, public appetite for action, so firms lobbied to shape the regulation that emerged. ETS introduced in 2005 Strictest approach, but uses market mechanisms, flexibly In Australia, Canada, USA, lobbying was against action Global supply of food and water is another key issue

Bolivian example of ethical issues in water privatization Volatility of global markets for wheat and rice, exacerbated b y rise of biofuels Summary We have: Looked at the stake held by government in business and set out how the role of government and its central task of issuing regulation for business, affects this stakeholder relationship Discussed the complex role of governments and the interdependencies and mutual interests that they have with business Looked at the way globalisation shifts the role of business and government in regulating issues of relevance to business ethics Seen how sustainable development can clash too strongly with short-term profit goals of  business to be left to merely voluntary approaches Chapter 12 Conclusions and Future Perspectives Lecture 12 Overview Reiterate the role, meaning, and importance of business ethics Summarize the influence of globalization on business ethics Assess the value of the notion of sustainability Discuss the role and significance of stakeholders as a whole for ethical management Review the implications of corporate citizenship thinking for business ethics Summarise the contribution of normative ethical theories to business ethics Consider the benefits of thinking about ethical decision-making Assess the role of specific tools for managing business ethics The nature and scope of business ethics? The simple question of „what is business ethics?‟ does not exactly lend itself to a simple answer  Particularly with the relationship between ethics and the law: Corporations sometimes supplement/replace the law-making process with selfregulation; Sometimes they challenge, resist, and subvert legalistic approaches to en forcing ethical behaviour  New problems continue to arise because of:  New technologies Changes in business practices or markets Exposure to different cultures Changing expectations  New opportunities for ethical abuse Scope of business ethics is thus ongoing and dynamic Globalization as a context for business ethics First aspect of globalization is that much corporate activity takes place in multiple national contexts Exposes companies to different cultural  and legal environments Second aspect of globalization –  creates a social space beyond the power of single nation states For many business ethics problems, no single nation state is able to regulate and control corporate actors

Sustainability as a goal for  business ethics The challenge posed by sustainability for business ethics is huge Potentially threatening to existing corporate ways of thinking, organising and behaving Sustainability implies goals that lie beyond the time horizons of b usiness, and which might be thought to jeopardise traditional bottom-line goals Often trade-off between the different elements Without strong governments issuing legislation and/or developing new institutional arrangements, business progress is unlikely to be sufficient to meet sustainability goals Corporate citizenship and business ethics Two major points CC in the „extended‟ view identifies the corporate involvement in the administration of citizenship rights, most notably social, civil, and political rights Alongside this role, the question of accountability automatically surfaces, and h ere the  picture is not so bright The contribution of normative ethical theories to business ethics These theories rarely provide us with a clear-cut, unambiguous, and non-controversial solution This book could be argued to be closer to a postmodern perspective: ethical theories are at best tools to inform the „moral sentiment‟ of the decision-maker Ethical theories might help to structure and rationalise some of the key aspects of those decisions, but their status can never be one that allows a moral judgement or decision to be made without effectively immersing into the real situation Influences on ethical decision-making Descriptive ethical theories helped us to understand the way in which people in organizations actually made decisions about business ethics Given the increasingly internationalization of business, we might suggest that the national and cultural influences on decision-making will become more important, but less clear-cut The role of management tools in business ethics Business ethics is about more than just managing with tools and techniques; it is about expanding horizons, deepening understandings, and developing critical thinking about business  practices It is not really a separate branch of management, but pertains to every traditional branch or aspect of management, such as marketing, finance and strategy A crucial role is likely to be played by: Social auditing and reporting Stakeholder dialogue Employee participation Shareholder democracy Business-CSO partnership Codes of ethics The role of different stakeholder constituencies in business ethics (I) Their significance varies in different contexts, issues, and topics  Normative and instrumental approaches Shareholders Remain a key stakeholder group for the corporation Shareholder activism (and SRI)