Business Ethics : Understanding the Implication

The Air Plane story Is the CEO unethical(?) The Merck & Company and river blindness Does the Action of CEO scarifying profit of the company justified ? Business Ethics : Oxymoron ?

Business ethics and Pursuit of profit

Does , Sacrificing share holders money on ethical concerns justified? Does Ethical practices pay in Business ? Does Ethical behvaiour give competitive advantage ?

Ethics and Morality

Ethics : principles of conduct governing individual and group or the study of morality Morality : Set of norms or standards to classify action good and bad. Moral standards are product of the environment and are subject to revision

The Moral standards

1. Moral standards deal with matter that we think can seriously injure or benefit human : Murder, theft, child labour, and so on . 2. Moral standards are not subject to the decision of authority : Reasoning 3. Obligations : it is not bad to pursue self interest but not at the cost of morality or moral obligation 4.Interest of everybody are impartially counted as equal (not of a particular group or person but balancing is required say giving some concession to weak ) 5. Associated with special emotions ( feel guilty , ashamed or remorseful)

Descriptive and Normative

Ethics is the discipline that examines ones moral standards or moral standards of the society /business. Descriptive and normative ethics What Indian feels about giving bribes to get their work done ? Provide descriptive characteristics of peoples belief Is giving bribe justified ? Developing reasonable normative claims or theories.

Morality

Rationalize morality

To produce Ethical Theory

Theory can be Applied to a Situation

Potential Solution to a ethical problems

Need to create values

Business is sub system of social system Produce to satisfy the wants of the society Distribution of the production Corporation are large and getting larger : 1.Shareholders limited liability

2. Director or mangers : enormous powers 3.Workers The foot soldiers 4. People trust /depend on corporation .

Law and Ethics

Law is essentially an institutionalization or codification of ethics in to specific rules , regulation or proscription . Law minimum acceptable standards of or behaviour : Divorce / drive or walk on the right side of road. Business Ethics starts, where law ends or values are involved Grey Areas : testing on animals , persuasive sale techniques , child labour

The Relationship between law and Ethics

The Key Goal of Business Decision : Sustainability

The Rio- Earth Summit 1992 Pollution , waste disposal, Devastating consequences to communities Erosion of local culture Sustainability key to Business Decision Meets the need of present without compromising the ability of future generation to meet their needs

Intergenrtion Equity : Equality between one generation and other

ICI, NOIKA, Shell and many other companies publish sustainability report .

The Triple Bottom Line(TBL)

The Broad Base of Sustainability
Business has triple goals , economic , social and environment There is tradeoff between environment , economic and social concerns. There are detrimental effects and also benefits . No one has the right to mortgage future but to live and live happily is also a right of present generation World Commission on Environment and Developments primary espoused aim is to eradicate poverty and equality.

The Economic Context

Carrying capacity of earth The responsibility of management to economic performance of the product : Long run economic performance of corporation Vs short term explosions Impact on the economic fabric in which it operates.

Social Context
Social Justice 80 percent of the worlds GDP belongs to 1 billion ( about 16 percent population ) The Chasm between skilled and unskilled worker, formal and informal economies, growing disparities in access to health, education, and social and political participation . How Business can respond to these challenges

The Social Context

Millennium Development Goals 2015
Eradicate Extreme poverty and hunger Achieve Universal primary Education Gender Equity and empowerment of women Reduce Infant mortality Improve maternal health Combat HIV/AIS, malaria and other diseases. Ensure environmental sustainability Develop a global partnership for development

Globalization & Business Ethics

Globalization is progressive eroding of the relevance of territorial bases for social , economic and political activities , process and relations Cultural Issues : contradictory ethical standard. Close connection between local culture and moral values Legal issues Global financial transactions are beyond the control of any national government , cyber crimes.

Globalization & Business Ethics

Issue of Accountability : The decisions of MNCs affect countries across countries but they are accountable to all national governments ( and to bring them in books is a tedious task Union Carbide ) The TBL is less about accountability and more about revolutionizing the way companies think .

Business Ethics
A quest for Bliss
Better life for me and for others

Corporate Social Responsibility

BE is the study of the business situation, activities and decision where issues of right and wrong are addressed The Questions 1. Is there any need to analyse business beyond the realm of profit maximization ? 2. Does the responsibility end with Providing goods and services and pay taxes ?

A corporation an artificial person : Implication

Perpetual succession : Replace those who leave ( died ) The company own the wealth not the shareholders, who own the company Fiduciary responsibility of mangers /directors to shareholders

The Social responsibility of Business is to Increase Profit : Milton Friedman

Only Human beings have moral responsibility Manager guided by purpose other than maximize profit is committing theft. (Managers have the sole responsibility to act in the interest of shareholders) Government, not corporation have the right/ duty to decide on social issues
( The issue of democracy & professional , competence )

Joel Bakan : The Corporation

A surprisingly rational and coherent attack on capitalism's most important institution: Economist

The hard hitting film Corporation : The psychopath person Legally instituted to act as externalizing machine ; No regard of the impact of their action on society Dehumanize those who work in it

Two arguments for CSR

Corporate moral Agency review and implication : G. Moore Journal of Business Ethics vol 21 ( 1999)

1. Corporation has legal independence to its owners and is also an independent agency of their members.
Corporate internal decision structure & Predetermined goals

2. Organizational culture : Values and Beliefs

If legal then moral as well : Law is codified ethics

The Half Century Old Debate

A three dimensional Model of CSR A B Carroll ( Academy of management Review 4:497-505- 1979 )

The Rationale of CSR (1)The Business Arguments Enlightened self interest takes corporation beyond profit maximization More satisfied consumer Environmental Groups, Child labour & Boycott of produce ( Green Peace, Centre for Science and Environment , Society for Common cause )

The Half Century Old Debate

Rationale of CSR: The Business Arguments
Low attrition rate of employees : Self Esteem Forestalling Government legislation : Greater Corporate Autonomy ( Recent increase price of steel price and Governments threat to enforce ESMA, Rural credit and Nationalization of Banks in India ) Creating a more stable society and furthering the interest of Business ( Many Examples of Latin American Countries, Copper Mines and Left Government in Chile and later long
spell of Dictatorship, Shell Company and capital punishment to Ken Sarabibo the Noble laureate )

The Half Century Old Debate

Rationale of CSR: (2) Compensatory Arguments

In their pursuit of profit maximization Business create social problems

You pollute who will clean (?), you displace who will rehabilitate (?) . Heavy Tax burden Vs winning friends

Corporate depend upon the various stakeholders not only on shareholders ( Hence need to take into account their welfare)

Rationale of CSR: (2) Compensatory Arguments

Corporate draw a lot from the externalities created by government and people must compensate the cost ( Law and order , educated and rational citizen) Social Impact of activities of corporate : product , employment : Positive , negative or neutral ,
( Hollywood , Bollywood and Cultural Diversities, language etc )

Nature of CSR : Four Part Model

1.Economic Responsibility : price performance The value for your money The Bottom and the rock : Required by society(Essential )

2.Legal Responsibility : respect the sovereignty in letter and spirit Play by the rule of the game : Required by society(Essential ) 3. Ethical Responsibility : Do what is right even law does not require From profit hunting to legal finally ethical entity: Expected by society( Desirable )
4. Philanthropic Responsibility : Love for mankind

We draw from society let us give back Desired by society( optional )

The Pyramid of Corporate Social Responsibility

Towards the Moral management of organizational stakeholders A B Carroll (1991) Business Horizons Jul-Aug 42

Nature of CSR : Four Part Model

The Conflict between two or more responsibility Loss of job and closure of firm Corporate are economic entity and know that 1. There is no free lunch 2. To grow you need to survive 3. Profit is the life blood of firm .

The Explicit and Implicit CSR

Explicit Economic (specially to share holders), and Legal

Implicit - Ethical & philanthropic

The countries where market economies have evolved, suffered various pains , CSR is intrinsic in system, it is implicit : Western and Northern Europe

Corporate Responsive to Social concerns

How corporations responds to social concerns

The case of Tobacco and Liquor industry The case of Drug and pharmaceutical industry

How corporations responds to social concerns?

1. Reaction : Does not Accept Responsibility 2. Defense : Admits , fights and forced , resort in legal minimalism 3. Accommodations
Accept and does what is demanded by relevant groups

4. Proaction : Go beyond industry norms

Outcomes of CSR
Corporate Social performance can be observed Principles , process and outcomes

Three concrete areas

(A) Social policies : Values in the mission statement( .g. environment concerns) (B) Social Programme (c ) Social Impact

Fedrick W.C.(1994) From CSR1 to CSR2: The Maturing of Business and Society thought Business and Society 33(2): 150-64

Stakeholders Theory of Firms

There are many, inter-alia , shareholders who have legitimate interest in the corporation The principals of
(A) Corporate right (B) Corporate effect

A stakeholder is an individual or group which is either harmed or benefited or whose rights can be violated or have to be respected by the corporation
Evan W.M and Freeman R.E(1993)A stakeholder Theory of modern corporation Kantian capitalism In NE Bowie (ed)Ethical Theory and Business Englewood Cliffs NJ Prentice Hall

Stakeholders Theory of Firms

Shareholders, customers, Employee, Supplier ( the traditional model of managerial capitalism ) adding Government , competitors , Civil society, makes it The stakeholders model

Why Stakeholder matter

The descriptive level
Legal perspective and necessity to go beyond it.
The activities of firm has wider impacts even on those

who are not in contractual agreement with it Economic Perspective

1. 2. Externalities Agency Problems : ownership of firms Vs Motive of Shareholders

Corporate Accountability Why ?

Government failure
Political institutions of modern societies are not able to protect their citizens from the self imposed consequences of industrialization

Governments are part of problems and not of solution : Compulsion of democratic system Below the level of traditional governance or sub politics Global warming , risk inherent in new technologies, SARS, Bird Flue , AIDS

Corporate Accountability Why ?

Increasing power of Corporate Globalization & shifting of activities in to low cost regions Intricate laws difficult to implement to check economic crimes Public services are coming in private sectors Unemployment etc could not be solved by govt ,

To Whom Corporate are Accountable ????

De facto political institutions New Accounting Procedure : Environmental and Social Accounting and Auditing Boarder communication with shareholders

A Pause !!!

To see and Evaluate

How your actions are impacting others Thanks