9.0 BUSINESS ETHICS AND COPORATE SOCIAL RESPONSIBILITY

1. 9.0 BUSINESS ETHICS AND COPORATE SOCIAL RESPONSIBILITY Definitions Approaches to ethics CSR and stakeholders approaches Historical development Rationale and effectiveness Mechanisms

2. 9.1 BUSINESS ETHICS - DEFINITION • A very broad topic. • “A study of business situations, activities and decisions where issues of right and wrong are addressed. “ (Crane and Matten, 2010, p.5) • “Some companies have acknowledged that there is enhanced reputation to be gained through recognizing that capitalism will be most successful when it cares for its customers, its producers, the environment and the communities in which it operates.” (McIntosh, 1998, p.3)

3. 9.2 DEFINITION II • Conducting business honestly. • Treating stakeholders fairly. • Being accountable. • Looking after the environment.

4. 9.3 ETHICS AND GLOBALIZATION • Ethical issues are more complex due to variations in culture, laws and institutional frameworks. • Makes the application of ethical rules difficult as there are few universals. • Differences are national and regional.

5. 9.4 ETHICS AND SUSTAINABILITY • Concern for the planet and the environment. • To ensure that our policies and actions “meet the need of the present without compromising the ability of future generations to meet their needs.” (World Commission on Environmental Development, 1987)

6. 9.5 TYPES AND VARIATIONS IN BUSINESS ETHICS • Transcendental ethics or ethical absolutism. • Utilitarianism – an action is morally right if it produces the greatest good for the greatest number. • Social ethics or ethical relativism. • Tactical ethics.

7. 9.6 ETHICAL RELATIVISM A product of: • National and regional cultural differences e.g. attitudes to bribery. • Institutional and regulatory differences. • Changes over time. • Values of decision-makers. • Corporate culture. • Dilemmas facing management.

8. 9.7 CORPORATE SOCIAL RESPONSIBILITY I • ‘Practical application’ of business ethics by the firm. • View of the corporation as a legal entity. • “a situation where the firm goes beyond compliance and engages in actions that appear to further some social good beyond the interests of the firm and that which is required by law.” (McWilliams et al, 2006, p1.)

9. 9.8 CORPORATE SOCIAL RESPONSIBILITY II Carroll (1991) – ‘pyramid of CSR’. • Philanthropic responsibility – desirable. • Ethical responsibility – expected. • Legal responsibility – required. • Economic responsibility to shareholders, suppliers, employees – required.

10. 9.9 CORPORATE SOCIAL RESPONSIBILITY III Activities that are part of CSR (after Blowfield and Murray 2011) • Business ethics • Legal compliance • Philanthropy and community investment • Environmental management • Sustainability • Human rights • Animal rights • Employee rights and welfare • Market relations • Corruption • Corporate governance

11. 9.10 CSR AS STAKEHOLDER THEORY CSR is often expressed in terms of stakeholder theory. Stakeholders include: • Shareholders • Customers • Financial institutions • Employees • Suppliers • Community • Society in general • Government and judiciary • Environment

12. 9.11 ETHICAL ISSUES INVOLVING STAKEHOLDERS • Shareholders – agency problem, dividend versus re-investment. • Employees – pay, hours, trade union membership, privacy, working conditions, discrimination. • Consumers – product utility, value for money and safety, excessive or misleading pricing, misleading communications, consumerism. • Suppliers – ethical sourcing, misuse of power, bribes. • Competitors – abuse of monopoly power, aggressive tactics, dirty tricks.

13. 9.12 PROBLEMS INVOLVED IN THE STAKEHOLDER APPROACH • Conflict and priorities between stakeholders. • Stakeholders are broad groups with different interests within them. • Requires effective representation of stakeholders in company affairs. • Requires adequate disclosure of information. • Many organizations operate globally under different governments and cultures.

14. 9.13 HISTORICAL DEVELOPMENT OF BUSINESS ETHICS • Western Christian values. • 19thC paternalism. • Separation of ownership and control – agency problem. • Early 20thC concern over rising power of big business - rise of trade unionism. • 1960s reaction to materialism. Development of environmental and consumer movements. • 1990s focus on globalization and sustainability. • 2000s focus on scandals, corporate collapse, banking crisis.

15. 9.14 RATIONALE I – MORAL ARGUMENTS • Organizations are part of society and should behave responsibly. • All activities of business have social impacts. • Businesses cause social problems. Solving them benefits society. • Businesses need to work with a variety of stakeholders, who should be treated fairly.

16. 9.15 RATIONALE II – BUSINESS ARGUMENTS I “ For business managers, government officials, academics, consultants to name but a few, making the business case has become the Holy Grail. There is a simple reason for this: demonstrating a positive correlation between corporate responsibility and business performance (especially financial performance) is seen as giving social and environmental issues legitimacy in mainstream business.” (Blowfield and Murray, 2011, p.131)

17. 9.16 RATIONALE II – BUSINESS ARGUMENTS II • Ethical business as profitable business – payback through investment in safety, treating stakeholders well etc. is commitment, motivation and more business. • Saving energy cuts costs. • Ethical business avoids litigation. • Bad practice attracts bad publicity e.g. NY Times and Nike. • Bad practice costs. • Keeps governments at arms length and/or gains their support. • Development of the concept of the ethical supply chain. Relationship with suppliers can be the key to business success. • Growth of ethical consumers, investors and employees e.g. attracts committed staff. • Friedman (1970) believes these arguments are really using ethics to support profit maximization and increasing shareholder value.

18. 9.17 RATIONALE III – STRATEGIC ARGUMENTS • Social responsibility is a resource that can be used for competitive advantage. • Porter and Kramer (2006) see many ethical initiatives as unconnected, misdirected and nor persuasive to CEOs. • Need to integrate business and society to benefit both. • Prioritize issues that mean something to the company e.g. AIDS pandemic in Africa does not affect all firms but affects drugs companies and companies using African labour. • It involves choosing a unique position that goes beyond the normal response to achieve competitive advantage (Porter and Kramer 2006). • Illustrations – Toyota Prius, Credit Agricole, Nestle, Vodafone in Africa, GEs ‘Ecomagination’ range of products.

19. 9.18 CRITIQUE OF RATIONALE The alternative arguments – why business should not be concerned with ethics: • Levitt (1958) – ‘government’s job is not business and business’s job is not government’. • Carr (1968) – ‘the role of business is to win’. The law is there to protect. • Friedman (1970) – ethical considerations are a misuse of resources that should be directed at maximising shareholder value. • Ethical behaviour is no more than good management practice to ensure profit.

20. 9.19 MECHANISMS FOR ETHICAL BUSINESS • Mission statement • Ethical audit • Codes of practice • Ethical department • Employee induction and training • Whistleblowing • Role of non-executive directors • Implicit mechanisms linked to corporate culture

21. 9.20 PROBLEMS AND ISSUES IN ORGANIZATIONS OPERATING ETHICALLY • Weak evidence on links between ethical. practices and performance. • Pressures on managers to increase profits and reduce costs. • Lack of interest in many organizations. • Ethical concern as a sham – brochures and doublespeak. • High cost. • Cultural variations. • Stakeholder differences. • Firms change ownership.