B368 Business Issues and Ethics

1. B368 Business Issues and Ethics Group 7 Tutorial 2 C.S. Lai Nov. 2011 B368 Business Issues and Ethics

2. Welcome! – today’s agenda • Introduction and review of last tutorial 20 mins. • Unit 2 – Making ethical business decisions 120 mins. • Break 10 mins. • Unit 3 – Tools and techniques to manage business ethics (will not be discussed in details in the tutorial) • TMAs 15 mins. • Q&A, Your Suggestions 15 mins. B368 Business Issues and Ethics

3. Summary of Tutorial 1 • What is business ethics? • Why is business ethics important? • Globalization: a key context for business ethics? • Sustainability: a key goal for business ethics? B368 Business Issues and Ethics

4. What is business ethics? Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. B368 Business Issues and Ethics

5. … to produce ethical theory … Ethics rationalizes morality … …that can be applied to any situation. Morality Ethics Ethical theory Potential solutions to ethical problems The relationship between morality, ethics and ethical theory B368 Business Issues and Ethics

6. 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 B368 Business Issues and Ethics

7. Globalization: a key context for business ethics? B368 Business Issues and Ethics

8. What is globalization? • According to Scholte (2000) globalization is not: • ‘internationalization’ • ‘liberalization’ • ‘universalization’ • ‘westernization’ • Globalization is: the progressive eroding of the relevance of territorial bases for social, economic and political activities, processes and relations • ‘deterritorialization’ B368 Business Issues and Ethics

9. Ethical impacts of globalization B368 Business Issues and Ethics

10. Sustainability: a key goal for business ethics? B368 Business Issues and Ethics

11. The three components of sustainability Economic Social Environmental B368 Business Issues and Ethics

12. Triple bottom line • Coined by John Elkington • Bottom line thinking suggests sustainability as a goal • Three dimensions: • Environmental perspectives • Economic perspectives • Social perspectives B368 Business Issues and Ethics

13. Framing Business Ethics:Corporate Responsibility, Stakeholders, and Citizenship B368 Business Issues and Ethics

14. Activity • What is a Corporation? • Do companies / corporations have social responsibilities? B368 Business Issues and Ethics

15. Overview • Analyse the notion of responsibility for corporations; • Distinguish the various concepts of corporate social responsibility; • Present the stakeholder theory of the firm; • Outline the concept of corporate accountability; • Critically examine the notion of corporate citizenship; • Discuss specific European implications of these – mostly US-born - concepts B368 Business Issues and Ethics

16. Towards a framework for business ethics B368 Business Issues and Ethics

17. 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 independently of them • Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders B368 Business Issues and Ethics

18. Can a corporation have social responsibilities? • Milton Friedman 1970 classic article “The social responsibility of business is to increase its profits” • Vigorously argued against the notion of 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 B368 Business Issues and Ethics

19. 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 and 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 corporate decisions 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 culture (Moore 1999) B368 Business Issues and Ethics

20. Corporate Social Responsibility B368 Business Issues and Ethics

21. 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 • Because they are powerful, corporations should use their power and resources responsibly • All corporate activities have social impacts of one sort or another • Corporations rely on the contribution of a wide set of stakeholders in society rather than just shareholders B368 Business Issues and Ethics

22. Activity • Pick an organization that you’re familiar with; • Identify the activities that this organization have done in order to fulfill its social responsibilities. • E.g. • Diageo is promoting responsible drinking (Ethics in Action 2.1); • CLP is planting trees. • https://www.clpgroup.com/SocNEnv/SER/Community/Pages/CommunityInvestment.aspx • If you’ re the boss of that organization, will you support the social responsibility initiatives by contributing $$ and time? Why and why not? B368 Business Issues and Ethics

23. What is the nature of corporate social responsibilities? Corporate social responsibility encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time (Carroll & Buchholtz 2000:35) B368 Business Issues and Ethics

24. Carroll’s four-part model of corporate social responsibility Desired by society Philanthropic Responsibilities Expected by society Ethical Responsibilities Required by society Legal Responsibilities Required by society Economic Responsibilities Source: Carroll (1991) B368 Business Issues and Ethics

25. CSR in a European context • CSR particularly strong concept in US and only more recently become so influential in Europe • Difference due to explicit CSR is US and implicit CSR in Europe • Could argue that all levels of CSR play a different role in Europe • Economic responsibility • USA strongly focused on responsibility to shareholders • Europe focused on the economic responsibility to employees and local communities as well • Legal responsibility • State accepted as prominent force in enforcing rules of the game rather than as interfering in it • Ethical responsibility • Europeans tend to exhibit greater mistrust of modern corporations than US • Philanthropic responsibility • In Europe mostly been implemented compulsorily via the legal framework rather than via discretionary acts of successful companies (US) B368 Business Issues and Ethics

26. 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 of social responsiveness (Carroll 1979) • Reaction • Defence • Accommodation • Proaction think about the activity you just done…which strategy the organization you mentioned was using? B368 Business Issues and Ethics

27. Outcomes of CSR: corporate social performance • Outcomes delineated in three concrete areas: • Social policies • Social programmes • Social impacts B368 Business Issues and Ethics

28. Stakeholder theory of the firm B368 Business Issues and Ethics

29. Stakeholder theory of the firm • Theory developed by Edward Freeman (1984) • A stakeholder in 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 • Principle of corporate effect – companies are responsible for the effects of their actions on others B368 Business Issues and Ethics

30. Shareholders Customers Firm Suppliers Employees Stakeholder theory of the firm:traditional management model B368 Business Issues and Ethics

31. Competitors Government Customers Shareholders Firm Suppliers Employees Civil society Stakeholder theory of the firm B368 Business Issues and Ethics

32. Customer stakeholder 1 Competitors Government Customer stakeholder 3 Customers Shareholders Firm Employee stakeholder 1 Suppliers Employees Civil society Employee stakeholder 2 Supplier stakeholder 1 Civil society stakeholder 1 Civil society stakeholder 2 Stakeholder theory of the firm:a network model B368 Business Issues and Ethics

33. Activity • Identify the stakeholders of an organization that you’re familiar with, or OUHK. B368 Business Issues and Ethics

34. Why stakeholders matter • Milton Friedman – 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. B368 Business Issues and Ethics

35. 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 B368 Business Issues and Ethics

36. Stakeholder thinking in a European context • One could argue that although the terminologyof stakeholder theory is relatively new in Europe, the general principles have actually been practised for some time: • German supervisory board • ‘Covenant Approach’ in environmental regulation in the Netherlands B368 Business Issues and Ethics

37. 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 B368 Business Issues and Ethics

38. Activity • Ethical Dilemma 2 • What are the ethical issues? • E.g. Ballistico has contractual obligation to publish his results… • What are the options? How would you assess the options (hint: using the stakeholders approach) • E.g. Publish anyway • How should he proceed? How can he prevent similar issues in future? B368 Business Issues and Ethics

39. Corporate accountability The firm as a ‘political’ actor B368 Business Issues and Ethics

40. 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 B368 Business Issues and Ethics

41. 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 B368 Business Issues and Ethics

42. 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 B368 Business Issues and Ethics

43. Corporate citizenship B368 Business Issues and Ethics

44. 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 B368 Business Issues and Ethics

45. Commitments to corporate citizenship B368 Business Issues and Ethics

46. Three views of corporate citizenship B368 Business Issues and Ethics

47. Corporate citizenship Social role of the corporation in governing citizenship Social rights corporation as provider/ignorer Civil rights corporation as dis-/enabler Political rights corporation as channel/blockage An extended view of CC B368 Business Issues and Ethics

48. 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 politicalrole 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 globalisation • The rights of citizenship have strong links to the goal of sustainability • More in keeping with the European tradition of business ethics B368 Business Issues and Ethics

49. 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 B368 Business Issues and Ethics

50. Evaluating Business Ethics:What makes a business decision ethical? B368 Business Issues and Ethics