Mba1034 cg law ethics week 12 ethics 072013


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Ethics System, Utilitarianism, Rights, Justice, Ethical Behaviour

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  • Ethics is also an important foundation for the positive analysis of nonmarket issues. Individuals, activists, interest groups, and government officeholders can be motivated by moral concerns about a firm’s conduct.
  • The casuist approach is dangerous because it shortcuts the application of principles in favor of conceptions of responsibility that may be inconsistent with moral standards. Those conceptions can be a disguise for the self-interest of the decision maker.
  • The methodology of ethics, as illustrated in the left panel of the figure, involves the identification of decision alternatives, evaluation of those alternatives in terms of ethics principles and moral standards, and choice based on those evaluations. Ethics analysis is to be applied early rather than late in the process. As illustrated in the right panel of the figure, ethics that serves only to explain decisions made on other bases is inappropriate.
  • Political philosophy naturally focuses on conceptions of the state, how the state should grant and limit liberties and ensure justice, and the extent to which markets or other institutions are used to organize economic activity.Moral and political philosophies come together when they provide principles to govern the interactions among individuals. Utilitarianism provides a basis for a political philosophy in which the choice between private institutions, such as markets, and public institutions, such as government, is made according to which maximizes aggregate well-being.
  • Aggregation is required because an action may make some individuals better off and others worse off.The standard of human well-being and the need to consider the consequences for all persons correspond to fundamental ethical intuitions.
  • Utilitarianism is the antithesis of self-interest, and the two are equivalent only if private well-being and societal well-being are aligned.
  • To determine if the manufacturer or the user has the duty to add safety features or take care, respectively, the Calabresi and Melamed principles provide the following tests:Assign the duty to the party—the manufacturer or the user—that can best achieve improvements in the difference between aggregate benefits and costs.If it is not clear which party that is, the duty should be assigned to the party that is in the best position to assess the aggregate benefits and costs and then act on that assessment.If that is unclear (and hence a mistake in the assignment of duty could be made), assign the duty to the party that can at the lowest cost induce the other party to take actions to improve the difference between aggregate benefits and aggregate costs in the event of a misassignment.
  • A moral rule is then the one that does best in terms of its consequences for everyone affected in those similar situations. An action is then moral if it is consistent with the moral rule appropriate for that type of situation.
  • In act utilitarianism, an individual chooses the action that maximizes aggregate well-being, taking the behavior of others as given.
  • Philosophical criticisms One criticism of consequentialist systems is that they do not give adequate attention to intrinsic rights and liberties, which are said to be fundamentally important.A related criticism is that consequentialist systems treat all things alike in their calculus. Another concern with utilitarianism pertains to how duty is assigned when consequences are jointly determined or transgressions are possible.Interpersonal comparisons of utilityA fundamental problem with utilitarianism is the difficulty, if not the impossibility, of making interpersonal comparisons of utility. The preferences considered in the discipline of economics are ordinal in the sense that they indicate only how an individual orders one consequence relative to another.Those preferences do not reflect intensity.Identifying costs and benefitsA difficulty in the application of utilitarianism centers on whether well-being can be identified from observed actions.The measurement problemMost applications of utilitarianism involve difficult measurement and estimation problems. Social costs and benefits typically are measured in monetary units based on the amount a person would accept in exchange for a beneficial consequence or would forego to avoid a harmful consequence. Consequences are thus measured in terms of their monetary equivalents. The methods of measuring monetary equivalents in cost-benefit analysis in the public sector serve as guides for utilitarian analysis.The information problemAnother problem in the use of utilitarianism is obtaining the information required to evaluate the consequences for all those affected, either directly or indirectly.
  • The objective of a complete utilitarian analysis is to arrive at a decision in step 5. A more modest objective is to encourage managers to think broadly, rather than narrowly, about the consequences of actions.
  • An important difference between rights established by the state and those based on moral principles is that the former can be publicly enforced, whereas for moral rights there is no enforcement mechanism other than individual sanction.
  • For Kant, freedom and rationality are the foundations of a theory of morality.The strength of Kant’s conception of morality is that it focuses on motives or reasons for acting that are universal—apply to everyone—and thus are reversible—apply to oneself. The categorical imperative thus embodies two standards for the evaluation of maxims—universalizability and reversibility.Universalizability may be thought of as “Would I want everyone to behave according to that rule?” Reversibility may be thought of as “Would I want that rule applied to me?”
  • Those moral rights are intrinsic, since they are derived from the categorical imperative and not from other considerations such as consequences.Maxims“A firm must sell its product to anyone who wants it, regardless of the price they are willing to pay.”“A firm must sell its product to anyone who is willing to pay the price set by the firm.”“A firm must sell its product to anyone who is willing to pay the cost of producing it.”
  • The fundamental criticism of deontological systems is that they fail to explain why a principle or right should be respected.More specific criticisms of rights-based ethics systems are that they may not:Identify sufficiently precisely where the corresponding duty lies.Indicate priority when one right conflicts with another.Indicate when—if ever—it would be acceptable to violate a right.In spite of these criticisms, individual rights are a fundamental component of our ethical intuition.
  • Individuals claim rights and make demands on others by asserting moral justifications, but others may view those claims as morally unjustified.
  • Ethics pertains to the moral standing of claims. Politics involves efforts to turn claimed rights into granted rights or vise versa.
  • Rights analysis has two principal components.The first is determining whether a claimed right has moral standing.The second is determining how conflicts among rights are to be resolved.
  • When the set of rights is expanded to include instrumental rights and granted rights established by government through politics, however, rights can be in conflict.Those conflicts may mean that there is no action that respects all rights.Rights and interestsIn the case of moral rights, or rights more generally, one approach to reasoning about, if not resolving, conflicts is to assess the importance of the rights by considering the interests they are intended to promote or protect.PrioritizationThe framework for analyzing conflicts among rights begins with an identification of a right, an assessment of whether it is claimed or granted, and its bases.The possible bases for a right are moral and legal, where the latter includes the Constitution, statutes, court precedents, and contracts.
  • The figure presents a framework for prioritizing conflicting rights and illustrates the integrity tests issue.
  • Complex issues involving equal opportunity and discrimination continue to arise in the employment relationship.
  • In any ethics system emphasizing individual autonomy and liberty, consent is essential for an action or a rule to have moral standing.One is acting paternalistically toward a person if and only if:One’s action benefits that person.One’s action involves violating a moral rule with regard to that person.One’s action does not have that person’s past, present, or immediately forthcoming consent.That person is competent to give consent (simple or valid) to the violation.
  • Distributive justiceConcerned with the distribution of the rewards and burdens of social interactions. Necessarily comparative, since it identifies how those rewards and burdens are assigned to individuals with particular attributes or in particular situations.The basic comparative principle of distributive justice is that “Equals should be treated equally and unequals, unequally.”Compensatory justiceConcerned with whether and how a person should be compensated for an injustice.Has fairness and restitution as its goals. If a person is injured, the institutions of society may be designed to compensate the person.Compensation serves two objectives.First, it provides restitution for the injury. Second, it provides incentives to reduce injuries and their social costs by imposing the burden on the parties best placed to avoid accidents.Retributive justiceConcerned with punishment for actions that are contrary to a moral rule or societal well-being. May be used to justify deterring harmful actions.
  • Rawls argues that individuals would adopt two principles as a basis for justice as fairness:Each person is to have an equal right to the most extensive basic liberty compatible with similar liberty for others.Social and economic inequalities are to be arranged so that they are both:To the greatest benefit of the least advantaged.Attached to positions and offices open to all under conditions of fair equality of opportunity.
  • The role of incentives and the comparison between the utilitarian, egalitarian, and Rawlsian systems are illustrated in the figure, where the utility possibility set corresponds to societal institutions that satisfy the equal liberty and fair equality of opportunity principles.
  • In this methodology a departure from equal liberty cannot be justified by an advantage in social or economic matters for any individual, including the least advantaged.
  • Kantian maxims meet both standards.
  • If the dictator is solely self-interested, the rational action is to keep all the money, allocating zero to the responder.Explanations for the behavior observed in the dictator experiments:Participants in the role of the proposer are not rationally self-interested and instead are altruistic or other regarding. Fairness considerations dictate sharing the endowment.There are social norms that people follow in considering how to allocate the endowment.
  • To the extent that CEOs and firms are subject to audience effects they may adopt CSR to appear to be generous before their peers, other members of their industry, customers, or the public.The larger the audience, the greater should be the effect, and the greater the importance of the audience members.
  • Ultimatum gameThe responder can accept or reject the allocation by the proposer.If the allocation is accepted by the responder, the endowment is allocated as proposed.If it is rejected, both the proposer and the responder receive nothing.If both players are rational and self-interested, the equilibrium is for the proposer to allocate close to zero to the responder and the responder to accept the allocation because it is better than nothing.
  • Moral suasion can change the preferences of participants:But it could also serve as a coordination mechanism by increasing the confidence of participants that their partner would contribute and not free ride, in which case they themselves would contribute.
  • ConclusionsThe higher the cost (moral or otherwise) of acting ethically, the less likely is ethical behavior.Individuals exhibit greater altruism when endowments are windfalls than when they are earned.Greater social distance increases the cost of acting ethically and decreases the likelihood of ethical behavior.History matters. In particular, the more deserving is the responder, the greater is the fairness exhibited, and how deserving the responder is can depend in part on past actions and events. Cultural and social traditions, such as democratic experience and tradition, can also affect behavior.Some behavior consistent with fairness considerations can be due instead to strategic considerations based on self-interested preferences.A norm of reciprocity can foster ethical behavior, and greater opportunities for reciprocity can strengthen ethical behavior.Reciprocity can be based on self-interest. Self-interested individuals can anticipate the reciprocation by partners (e.g., responders in an ultimatum game) and hence may entrust resources to them.Two-sided reciprocity where people have the opportunity to reward and punish partners can sustain higher contributions than one-sided reciprocity. Relational contracts enforced through two-sided reciprocity can be beneficial.Repeated encounters encourage greater contributions to a public good by strengthening a norm of reciprocity or by making others seem more deserving through familiarity. Ethical behavior gives way to self-interest over time.Socialization through the sharing of information about how others behave can strengthen a reciprocity norm.Some people choose to avoid choices with moral ramifications.Moral rebels can be punished by others who see their behavior as an implicit rejection of their own conduct.Moral suasion can increase ethical behavior as well as serve as a coordination mechanism.
  • Reciprocity has implications for dealing with direct stakeholders and for the implementation and maintenance of relational contracts.Transparency can reduce social distance and make it easier to develop trust and reciprocity.Transparency for employees can be provided by internal communication, but transparency with stakeholders outside the boundaries of the firm is a more delicate matter.
  • The social responsibilities of business are identified by ethics principles and reasoning based on those principles.Triple bottom lineIt is intended to measure corporate environmental, social, and financial performance.More importantly, it serves as a reminder to management and other employees that profits are not the only relevant measure of corporate performance.An important concern about the triple bottom line is whether the product and capital markets will actually reward environmental and social performance.Balanced scorecardIt was proposed as a system for evaluating overall performance by assessing financial performance, customer relationships, internal company processes, and learning and growth.Some companies have extended it to include ethics and social performance.The balanced scorecard has been used to assess corporate performance, business unit performance, and the performance of individual managers.Compensation can then be based on the resulting scores.
  • The relationship between core principles and current policies and practices is illustrated in the figure.
  • The structure of both explicit and implicit incentives within a firm can be an important obstacle to ethical behavior.
  • Mba1034 cg law ethics week 12 ethics 072013

    1. 1. ETHICS SYSTEMS Stephen Ong, BSc(Hons) Econs (LSE), MBA International Business(Bradford) Visiting Fellow, Birmingham City University Visiting Professor, Shenzhen University MBA1034 GOVERNANCE, LAW & ETHICS
    2. 2. • Discussion: The role of Accountancy firms 1 •Utilitarianism, Rights & Justice, and Management 2 • Case Discussion : The Galleon Group & Insider Trading 3 Today’s Overview
    3. 3. 1. Open Discussion • Prem Sikka, (2008),"Enterprise culture and accountancy firms: new masters of the universe", Accounting, Auditing & Accountability Journal, Vol. 21 Iss: 2 pp. 268 – 295
    5. 5. Topics Covered • Introduction • The managerial role of ethics • What ethics is and is not • Personal and business ethics • Ethics and individual interests • Ethics, politics, and change • Casuistry • The methodology of ethics • The relationships among moral philosophy, ethics, and political philosophy
    6. 6. Topics Covered • Utilitarianism: A consequentialist system • Utilitarian duty and the Calabresi and Melamed principles • Act and rule utilitarianism • Utilitarianism and rights • Criticisms of utilitarianism • Utilitarianism in application
    7. 7. Introduction • The content of corporate social responsibility is provided by ethics • Ethics and its application in management constitute a broad and deep subject
    8. 8. The Managerial Role of Ethics • As a normative approach, ethics provides principles for: –Evaluating alternatives –Formulating policies to take into account the interests, rights, and liberties of those affected
    9. 9. What Ethics Is and Is Not • Ethics is a systematic approach to moral judgments based on reason, analysis, synthesis, and reflection • Ethics addresses matters of importance to human well- being, autonomy, and liberty • Ethics is based on moral standards that are independent of the declarations of governments or other authoritative bodies • Ethics is the discipline concerned with judgments based on moral standards and the reasoning therefrom • The focus of ethics is not on: – Simple temptation – Issues involving direct mutual advantage
    10. 10. Business Ethics • The application of ethics principles to issues that arise in business
    11. 11. Personal and Business Ethics • In personal ethics, an individual is the principal • Business ethics: – Pertains to situations in which individuals: • Are In an organizational position • Act as agents of the company and its owners – Differs from personal ethics because a manager has accepted the responsibilities associated with the position occupied
    12. 12. Ethics and Individual Interests • Ethical behaviour enables society to realize the benefits from social interactions – Allows individuals to rely on the word and conduct of others • Ethical behaviour does not always make an individual or a firm better off • Good ethics may not always be profitable, unethical behaviour can result in substantial losses
    13. 13. Ethics, Politics and Change
    14. 14. Casuistry • Approach to moral practice that seeks to balance competing considerations by: –Making exceptions to principles in particular cases • Characterized as a false art of making exceptions in particular situations, resulting in the violation of underlying principles
    15. 15. Appropriate and Inappropriate Methods of Applied Ethics
    16. 16. Process of Ethics Analysis
    17. 17. 21-17 Moral Philosophy •Concerned with deducing moral principles and standards from axioms or self-evident principles Political Philosophy •Related to ethics and moral philosophy but focuses on institutions to govern the interactions among individuals
    18. 18. Relationship Between Moral Philosophy and Ethics
    19. 19. Utilitarianism: A Consequentialist System • In a consequentialist system, an action is moral if it produces better consequences than any other alternative • Utilitarianism is a consequentialist system with two particular features: –Consequences are to be evaluated in terms of the preferences of individuals affected –Those preferences are to be aggregated
    20. 20. Summary of the Components of Utilitarianism • Utilitarianism is a moral philosophy that holds that: • Moral good is judged in terms of consequences • Consequences are evaluated in terms of human well- being • Human well-being is evaluated in terms of individual preferences • The rightness of an action is judged by the aggregate well-being, or good, it yields • The morally justified action maximizes aggregate well-being
    21. 21. Utilitarian Duty and the Calabresi and Melamed Principles • The most difficult aspect of applying utilitarianism, or any other ethics system, is: –Determining who has the duty to take a moral action • The Calabresi and Melamed principles provide a framework for reasoning about the assignment of duty
    22. 22. Act Utilitarianism • Focuses on the consequences of a particular action in a particular situation • Prescribes the action that yields the greatest aggregate well-being for everyone affected by the action Rule Utilitarianism • Focuses on a general rule of behaviour to be followed by all individuals in all similar situations
    23. 23. Jointly Determined Consequences • In many situations consequences are jointly determined by the actions of more than one person –In such a situation, a second form of rule utilitarianism is applicable
    24. 24. Utilitarianism and Rights • Rights may be classified as: –Intrinsic - To be respected because they have moral standing independent of the consequences they yield –Instrumental - To be respected because they lead to desirable consequences
    25. 25. Criticisms of Utilitarianism • Philosophical criticisms • Interpersonal comparisons of utility • Identifying costs and benefits • The measurement problem • The information problem
    26. 26. Utilitarianism in Application • Methodology: – Identify the alternatives – rules of behaviour and actions – For each alternative, identify the set of consequences for all persons affected – Determine which of the consequences are social costs and which are social benefits – Evaluate and estimate the social costs and social benefits – Choose the action or rule that yields the greatest difference between social benefits and social costs
    27. 27. Case - Gilead Sciences : The Gilead Access Program for HIV Drugs • A major milestone in AIDS treatment therapy was reached in October 2001 • The FDA approved Gilead’s breakthrough drug Viread as a first-line treatment for AIDS patients • Gilead was motivated by the suffering of patients with HIV/AIDS • Wanted its drugs to be available to those who needed them in the least developed countries • No single governing body provided regulatory standards and oversight for pharmaceuticals
    28. 28. Case - Gilead Sciences : The Gilead Access Program for HIV Drugs –A drug had to be registered in each country before it could be used • Patent protection allowed pharmaceutical companies to control drug pricing and distribution • In most developing countries, the company had no physical presence • Gilead was developing its access program in a charged environment
    29. 29. Case - Consumer Awareness or Disease Mongering? GlaxoSmithKline and the Restless Legs Syndrome • Restless legs syndrome - Neurological disorder characterized by an uncontrollable urge to move the legs – Accompanied by unpleasant and sometimes painful sensations in the legs • GSK recognized the potential of Requip to treat RLS after doctors had begun to prescribe it for the disorder • The Restless Legs Syndrome (RLS) Foundation, of Rochester, Minnesota, conducted research on and provided education about RLS
    30. 30. Case - Consumer Awareness or Disease Mongering? GlaxoSmithKline and the Restless Legs Syndrome • Disease-mongering - Corporate- sponsored creation or exaggeration of maladies for the purpose of selling more drugs • For a year in advance of approval of Requip in the United Kingdom GSK had advertised in doctors’ magazines to promote awareness of RLS
    31. 31. 2.3 RIGHTS AND JUSTICE
    32. 32. Topics Covered • Introduction • Classification of ethics systems • Classes of rights • Kantian maxims or moral rules • Applied rights analysis • Conflicts among rights • Equal employment opportunity • Paternalism • Neoclassical liberalism • Categories of justice theories • Rawls’s theory of justice • Higher order standards for evaluating ethics systems
    33. 33. Introduction • Consequentialist ethics systems such as utilitarianism focus on: –The good and evaluate the good in terms of individuals’ preferences for consequences • Rights established under a consequentialist system are instrumental –Their justification is in terms of the consequences they yield
    34. 34. Classification of Ethics Systems • Teleological - Define the rightness of an action in terms of the good its consequences yield –Also called consequentialist systems • Deontological - Holds that moral right takes precedence over the good –Can be evaluated by considerations independent of, or in addition to, consequences
    35. 35. Teleological and Deontological Ethics Systems
    36. 36. Rights • May be derived from moral principles • May be established through political choice • These often reflect moral principles • Established through legislation • Established through private agreements • Established by implicit contracts
    37. 37. Negative and Positive Rights • Negative rights impose duties on people and the state not to interfere with the actions of a person –For example, freedom of speech and assembly • Positive rights impose affirmative duties on others to take particular action –For example, right to public education
    38. 38. Kantian Maxims or Moral Rules • Categorical imperative - A fundamental axiom on which Kant’s system is based on –Serves two basic functions •Provides a basis for determining maxims and moral rules •Prescribes that individuals are to act in accord with those rules
    39. 39. The Relationship between Maxims and Rights • Kant’s system is expressed in terms of maxims: –Which individuals have a moral duty to respect •That duty establishes moral rights
    40. 40. Instrumental Rights •To be respected because they contribute to achieving better consequences, by, for example, enabling individuals to pursue their interests Intrinsic Rights •To be respected in and of themselves and do not require any justification in terms of consequences or other considerations
    41. 41. Instrumental Rights and Consequences
    42. 42. Intrinsic Rights and Consequences
    43. 43. Criticisms of Kantian Rights • Include: –Those that pertain to deontological systems in general –Those specific to his system
    44. 44. Applied Rights Analysis • In managerial decision making, rights have two effects: –They rule out certain alternatives, such as those that would violate moral principles or legally protected rights –A right may impose an affirmative duty that requires a firm to take particular actions
    45. 45. Granted Right •Established by moral consensus or by government and is accompanied by a clear assignment of the corresponding duty Claimed Right •When the duty has not been clearly assigned, moral consensus is absent, or government has not spoken
    46. 46. Rights and Moral Standing
    47. 47. A Methodology for Rights Analysis • Identify the rights claimed and their claimed moral bases • Determine which claimed rights satisfy moral standards • If a claim is not morally justified, check whether it is established by government – If it is, it is granted and is to be respected – If not, the claim need not be respected • Identify the actions consistent with the protection or promotion of any morally justified rights
    48. 48. A Methodology for Rights Analysis • Identify conflicts among rights – If there are none, those claimed rights with moral standing are to be respected • If there are conflicts among rights with moral standing: – Investigate the importance of the interests those rights are intended to protect or promote • Prioritize the rights based on the importance of those interests and determine the extent to which each is constrained by the others • Choose the action that does best in terms of the priorities established
    49. 49. Conflicts Among Rights • Rights and interests • Prioritization
    50. 50. Applied Rights Analysis: Integrity Tests
    51. 51. Equal Employment Opportunity • A principle supported by virtually all ethics systems –Its importance is supported by legal grants that provide for its public enforcement –Its legal manifestation is Title VII of the Civil Rights Act of 1964: • Which prohibits discrimination on the basis of “race, colour, sex, religion, or national origin”
    52. 52. Paternalism • Actions taken to benefit a person without that person’s consent –Is a moral wrong –Is objectionable from a consequentialist perspective because: •It denies individuals the opportunity to make choices that would further their interests
    53. 53. Neoclassical Liberalism • Emphasizes the liberty of individuals • Concerned with the relationships between liberty and morality and between liberty and the state
    54. 54. Categories of Justice Theories • Distributive • Compensatory • Retributive
    55. 55. Distributive Justice: Utilitarianism, Egalitarianism, and Rawlsian Justice
    56. 56. Injustice • A general principle advanced in conceptions of justice is that: –An injustice is morally tolerated only if it is necessary to avoid a greater injustice –Requires an ordering of injustices
    57. 57. Rawls’s Contractarian Framework
    58. 58. Difference Principle, Utilitarianism, Egalitarianism
    59. 59. Criticisms of Rawls’s Theory • One form of criticism centers on whether all individuals in the original position would choose the same principles: • If so, whether they would choose Rawls’s principles rather than some other principles • Another criticism centers on Rawls’s conclusion that: • In the original position, once liberties and equal opportunity have been assured, society would choose institutions that provide the maximum benefit to the least advantaged
    60. 60. Methodology for Applying the Principles of Justice • Identify the liberties and rights involved • The principle of equal liberty • The principle of fair equality of opportunity • For the remaining alternatives, evaluate their fairness implications for the pursuit of opportunities by those affected • Choose among the remaining policies based on the difference principle • Identify which parties have which duties
    61. 61. Higher Order Standards for Evaluating Ethics Systems • The ethics systems based on utilitarian, rights, and justice considerations use two general standards for determining which principles or rules have moral standing: –Universalizability (which implies reversibility) –Unanimous impartial choice as in Rawls’s original position
    62. 62. Case - Genetic Testing in the Workplace • Determines susceptibility to certain hazards can be done from a sample of blood or other bodily fluid • Can be used for either screening or monitoring purposes • Can also be used to monitor groups of employees over time – To determine if they experience chromosome damage due to exposure in the workplace • In 2008, Congress enacted and the president signed the Genetic Information Nondiscrimination Act
    63. 63. Case - Chipotle Mexican Grill and Undocumented Workers • Despite the success of the company in the marketplace, the management team faced: – A difficult challenge in its nonmarket environment • In 2010 ICE conducted an investigation of Chipotle restaurants leading to the firing of 400 workers • The chair of the immigration subcommittee of the House Judiciary Committee, Elton Gallegly (R-CA), argued that the use of E-Verify should be mandatory – The U.S. Chamber of Commerce reported that its members had mixed reactions to making E-Verify mandatory • Advocates for undocumented workers argued that firing the workers would simply drive them into the underground economy
    64. 64. Case - Environmental Injustice? • Addresses two aspects – Explanation for the empirical finding – Centers on whether the situation is unjust • Explanations for the finding that minorities and those in poverty are disproportionately located proximate hazardous waste facilities 1. Firms that construct and operate plants with toxic emissions and hazardous waste facilities: Seek to impose harm on the poor and minorities 2. Locations for such facilities are chosen on an economic basis 3. Locations for toxic emissions and hazardous waste facilities are chosen based on economic considerations and with the intent of avoiding posing a risk to people
    65. 65. Case - Environmental Injustice? • The bulk of the empirical studies examining the socio-economic characteristics of people who might be exposed to the hazards analyze: –The data at a point in time at which both the toxic emission site and the people are present • Ann Wolverton, an economist at the EPA, conducted an empirical study on Environmental Injustice –Supports the third explanation and not the first or second explanations
    67. 67. Topics Covered • Introduction • Behavioural ethics experiments • Managerial implications • The challenge of corporate social responsibility • Sources of unethical behavior
    68. 68. Introduction • Corporate statements of social responsibility and codes of ethics have become commonplace
    69. 69. Behavioural Ethics Experiments • Self-interest, altruism, and fairness • Audience effects, the self, and corporate social responsibility • Reciprocity • Behaviour in groups • Implications for the application of ethics principles • Moral suasion • Conclusions from the experiments • Extrapolation • Overconfidence in one’s self
    70. 70. Self-Interest, Altruism, and Fairness • A dictator game involves two participants: – A proposer who unilaterally makes a decision about how much of a sum of money, referred to as an endowment, to keep and how much to contribute – A responder who takes no action and simply receives the contribution • An unconditional altruist: – Takes into account the well-being of others independently of their actions • A conditional altruist: – Takes into account the well-being of others conditional on their past actions as well as their current situation
    71. 71. Audience Effects, The Self, and Corporate Social Responsibility • Audience effects studied to: – Assess whether proposers allocate a portion of the endowment to the responder so as not to appear selfish either to the responder, the experimenter, or one self • Audience effects can have implications for firms considering whether to practice corporate social responsibility (CSR) • Audience effects should be a function of the size and composition of the audience • Behaviour can also be affected by one’s own self- image
    72. 72. Reciprocity • The simplest setting in which to study reciprocity is a variant of a dictator game referred to as an ultimatum game
    73. 73. Behaviour in Groups • Group decisions have been studied using a (linear) public goods game in which: –All participants in a group have an endowment that they can keep for themselves or –They can contribute some portion of it to a public good that benefits all members of the group
    74. 74. Implications For the Application of Ethics Principles • Rawls’s theory of justice criticized because: –It represents a slice in time and ignores how that slice in time was arrived at • The actions taken by individuals in the past as well as events beyond their control determine where they are located on the justice frontier
    75. 75. Moral Suasion • Behaviour can be influenced by moral suasion
    76. 76. Conclusions from the Experiments • Experimental findings discussed suggest a number of conclusions about behaviour • Each of these should be interpreted with caution and as a tendency rather than a law of human behaviour
    77. 77. Extrapolation • Care must also be taken in extrapolating from experimental findings to real-world contexts
    78. 78. Overconfidence in One’s Self • People often overestimate their ability to deal effectively with moral issues –The self-serving bias of moral superiority can lead to overconfidence and reduced care: • When making decisions on issues involving moral concerns
    79. 79. Managerial Implications • The most consistent conclusion from the experiments is people differ in: • Behaviour • Preferences • Moral conduct • Differ in the importance of factors such as: • The characteristics of those affected by their decisions • The audience for their actions • The scrutiny they face • The social context of their situation • How they take strategic considerations into account
    80. 80. Managerial Implications • Implications of the experiments are relevant for: –Firms and their managers when making decisions that involve moral concerns –Anticipating nonmarket action that may be motivated by the (ethical) conduct of a firm
    81. 81. The Challenge of Corporate Social Responsibility • The spread of codes of ethics and statements of social responsibility is due to: – A belief by some firms that they should be accountable for conduct beyond profit maximization – A defensive motivation intended to avoid private politics led by activists and other interest groups or to preempt public politics and additional government regulation • Approaches used to giving standing to corporate social responsibility: – Triple bottom line – Balanced scorecard
    82. 82. Core Principles and Their Evolution • Johnson & Johnson’s “Our Credo” identifies: –Commitments to a set of stakeholders and can be revised as the set of relevant issues it faces evolves
    83. 83. Principles, Objectives, and Strategies
    84. 84. Sources of Unethical Behaviour • Unethical behaviour has a number of sources: –Some are idiosyncratic to the particular individuals involved –Others are functions of the managerial practices or the policies of the firm itself –Personal weakness –Temptation –Narrow focus on the duties imposed by the law –Reliance on an ethics framework
    85. 85. Case - Denny’s and Customer Service • Six African American agents filed a lawsuit against Denny’s (a unit of Flagstar) restaurant for discrimination • In response to the agents’ charges, Flagstar fired the manager of the restaurant for failure to report the incident –But maintained that the delay in serving the black agents was not racially based • Other such incidents followed regularly forcing Denny’s to apologize to customers, firing or transferring “bad-apple” employees, and creating a cultural diversity team
    86. 86. Case - Fresenius Medical Care in China • Human rights groups and activists had regularly charged that China sold human organs harvested from executed prisoners, many of whom were sentenced to death for political crimes or for theft or corruption • Fresenius Medical Care’s Nanfang facility was operated by Chinese doctors, and Fresenius had one employee in Hong Kong who monitored the facility – Fresenius’s investigation revealed that foreign patients were receiving dialysis treatment at Nanfang for relatively short periods
    88. 88. Case - Insider Trading • Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security • Rajaratnam, founded Galleon, which recorded a peak of $7 billion in funds under management – The government had been alerted to Rajaratnam’s activities by messages uncovered during an investigation of a hedge fund run by his brother – One source of information for Rajarartnam was expert networks • Primary Global Research
    89. 89. Core Readings • Baron, David P.(2013) Business and its environment, 7th Edition, Pearson, Ch.21-23 • Cheeseman, Henry R.(2013) Business law, 8th Edition, Prentice Hall. Ch.2
    90. 90. Next Week’s Ideas for Discussion • Bartram, S (2008) What lies beneath: foreign exchange rate exposure, hedging and cash flows. Journal of Banking and Finance, 32 (8). pp. 1508-1521.
    91. 91. QUESTIONS?