Ethics in businesses

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PowerPoint Slides to AccompanyPowerPoint Slides to Accompany
BUSINESS LAWBUSINESS LAW
E-Commerce and Digital LawE-Commerce and Digital Law
International Law and EthicsInternational Law and Ethics
55thth
EditionEdition
by Henry R. Cheesemanby Henry R. Cheeseman
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Chapter 7
Ethics and Social
Responsibility of Business

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IntroductionIntroduction
 Businesses organized in the United StatesBusinesses organized in the United States
are subject to its laws.are subject to its laws.
 They are also subject to the laws of otherThey are also subject to the laws of other
countries in which they operate.countries in which they operate.
 Business persons owe a duty to act ethicallyBusiness persons owe a duty to act ethically
in the conduct of their affairs.in the conduct of their affairs.
 Businesses owe a social responsibility not toBusinesses owe a social responsibility not to
harm society.harm society.

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Law and EthicsLaw and Ethics
 Ethics –Ethics – A set of moral principles or valuesA set of moral principles or values
that governs the conduct of an individual or athat governs the conduct of an individual or a
group.group.
 What is lawful conduct is not always ethicalWhat is lawful conduct is not always ethical
conduct.conduct.
 The law may permit something that would beThe law may permit something that would be
ethically wrong.ethically wrong.

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Moral Theories and Business EthicsMoral Theories and Business Ethics
Ethical RelativismEthical Relativism
EthicalEthical
FundamentalismFundamentalism
UtilitarianismUtilitarianism
Kantian EthicsKantian EthicsRawls’s SocialRawls’s Social
Justice TheoryJustice Theory

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Ethical FundamentalismEthical Fundamentalism
 Ethical fundamentalism -Ethical fundamentalism - When a personWhen a person
looks to anlooks to an outside sourceoutside source for ethical rules orfor ethical rules or
commands.commands.
 Critics argue that ethical fundamentalismCritics argue that ethical fundamentalism
does not permit people to determine rightdoes not permit people to determine right
and wrong for themselves.and wrong for themselves.

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UtilitarianismUtilitarianism
 A moral theory that dictates that people mustA moral theory that dictates that people must
choose the action or follow the rule thatchoose the action or follow the rule that
provides theprovides the greatest good to societygreatest good to society..
 This does not mean the greatest good for theThis does not mean the greatest good for the
greatest number of people.greatest number of people.
 Has been criticized because it is difficult toHas been criticized because it is difficult to
estimate the “good” that will result fromestimate the “good” that will result from
different actions.different actions.

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Kantian Ethics (Duty Ethics)Kantian Ethics (Duty Ethics)
 A moral theory that says people owe moralA moral theory that says people owe moral
duties that are based onduties that are based on universal rulesuniversal rules..
 Based on the premise that people can useBased on the premise that people can use
reasoning to reach ethical decisions.reasoning to reach ethical decisions.
 This theory would have people behaveThis theory would have people behave
according to theaccording to the categorical imperativecategorical imperative::
““Do unto others as you would have them doDo unto others as you would have them do
unto you.”unto you.”

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Kantian Ethics (Duty Ethics)Kantian Ethics (Duty Ethics) (continued)(continued)
 Deontology’sDeontology’s universal rules are based onuniversal rules are based on
two important principles:two important principles:
1.1. Consistency –Consistency – all cases are treated alikeall cases are treated alike
with no exceptions.with no exceptions.
2.2. Reversibility –Reversibility – the actor must abide by thethe actor must abide by the
rule he or she uses to judge the morality ofrule he or she uses to judge the morality of
someone else’s conduct.someone else’s conduct.

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Kantian Ethics (Duty Ethics)Kantian Ethics (Duty Ethics) (continued)(continued)
 Thus, if you are going to make an exceptionThus, if you are going to make an exception
for yourself, that exception becomes afor yourself, that exception becomes a
universal rule that applies to all others.universal rule that applies to all others.
 A criticism of this theory is that it is hard toA criticism of this theory is that it is hard to
reach a consensus as to what the universalreach a consensus as to what the universal
rules should be.rules should be.

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Rawls’s Social Justice TheoryRawls’s Social Justice Theory
 Rawls’s social contractRawls’s social contract
A moral theory that says each person isA moral theory that says each person is
presumed to have entered into a socialpresumed to have entered into a social
contract, with all others in society, to obeycontract, with all others in society, to obey
moral rules that are necessary for people tomoral rules that are necessary for people to
live in peace and harmony.live in peace and harmony.

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Rawls’s Social Justice TheoryRawls’s Social Justice Theory
(continued)(continued)
 Rawls’s Distributive Justice TheoryRawls’s Distributive Justice Theory
 Fairness is considered the essence of justice.Fairness is considered the essence of justice.
 The principles of justice should be chosen byThe principles of justice should be chosen by
persons who do not yet know their station inpersons who do not yet know their station in
society.society.
 ThisThis “veil of ignorance”“veil of ignorance” would permit thewould permit the
fairest possible principles to be selected.fairest possible principles to be selected.

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Rawls’s Social Justice TheoryRawls’s Social Justice Theory
(continued)(continued)
 There are two major criticisms of thisThere are two major criticisms of this
theory:theory:
1.1. Establishing the blind “original position” forEstablishing the blind “original position” for
choosing moral principles is impossible inchoosing moral principles is impossible in
the real world.the real world.
2.2. Many persons in society would choose notMany persons in society would choose not
to maximize the benefit to the leastto maximize the benefit to the least
advantaged persons in society.advantaged persons in society.

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Ethical RelativismEthical Relativism
 A moral theory that holds thatA moral theory that holds that individualsindividuals
must decide what is ethical based on theirmust decide what is ethical based on their
own feelings as to what is right or wrongown feelings as to what is right or wrong..
 There are no universal ethical rules to guideThere are no universal ethical rules to guide
a person’s conduct.a person’s conduct.
 If a person meets his or her own moralIf a person meets his or her own moral
standard in making a decision, no one canstandard in making a decision, no one can
criticize him or her for it.criticize him or her for it.

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Ethical RelativismEthical Relativism (continued)(continued)
 A criticism of this theory is that an actionA criticism of this theory is that an action
usually thought to be unethical would not beusually thought to be unethical would not be
unethical if the perpetrator thought it was inunethical if the perpetrator thought it was in
fact ethical.fact ethical.

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Theories of Ethics – SummaryTheories of Ethics – Summary (1 of 2)(1 of 2)
TheoryTheory DescriptionDescription
EthicalEthical
fundamentalismfundamentalism
Persons look to an outside source or centralPersons look to an outside source or central
figure for ethical guidelines.figure for ethical guidelines.
UtilitarianismUtilitarianism Persons choose the alternative that wouldPersons choose the alternative that would
provide the greatest good to society.provide the greatest good to society.
Kantian ethicsKantian ethics A set of universal rules establishes ethicalA set of universal rules establishes ethical
duties. The rules are based on reasoningduties. The rules are based on reasoning
and require (1) consistency in applicationand require (1) consistency in application
and (2) reversibility.and (2) reversibility.

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Theories of Ethics – SummaryTheories of Ethics – Summary (2 of 2)(2 of 2)
TheoryTheory DescriptionDescription
Rawls’s socialRawls’s social
justice theoryjustice theory
Moral duties are based on an implied socialMoral duties are based on an implied social
contract. Fairness is justice. Rules arecontract. Fairness is justice. Rules are
established from an original position.established from an original position.
Ethical relativismEthical relativism Individuals decide what is ethical based onIndividuals decide what is ethical based on
their own feelings as to what is right ortheir own feelings as to what is right or
wrong.wrong.

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The Social Responsibility of BusinessThe Social Responsibility of Business
 Business does not operate in a vacuum.Business does not operate in a vacuum.
 Decisions made by business have far-Decisions made by business have far-
reaching effects on society.reaching effects on society.
 In the past, many business decisions wereIn the past, many business decisions were
made solely on a cost-benefit analysis.made solely on a cost-benefit analysis.
 ““Bottom line” impact.Bottom line” impact.

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The Social Responsibility of BusinessThe Social Responsibility of Business
(continued)(continued)
 Such decisions may cause negativeSuch decisions may cause negative
externalities for others.externalities for others.
 Corporations are considered to owe someCorporations are considered to owe some
degree ofdegree of social responsibilitysocial responsibility for theirfor their
actions.actions.

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Ethics BriefEthics Brief
Corporations that conduct socialCorporations that conduct social
audits will be more apt to preventaudits will be more apt to prevent
unethical and illegal conduct byunethical and illegal conduct by
managers, employees, and agents.managers, employees, and agents.

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The Social Responsibility of BusinessThe Social Responsibility of Business
(continued)(continued)
 Ethics is a function of history, culture,Ethics is a function of history, culture,
religion, and other factors.religion, and other factors.
 Therefore, ethical standards vary fromTherefore, ethical standards vary from
country to country.country to country.
 TheThe Caux Round TableCaux Round Table promulgated anpromulgated an
international ethics code called theinternational ethics code called the PrinciplesPrinciples
for International Businessfor International Business..

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The Caux Round TableThe Caux Round Table Principles:Principles:
 Principle 1Principle 1 The Responsibilities of BusinessThe Responsibilities of Business
Beyond Shareholders Toward ShareholdersBeyond Shareholders Toward Shareholders
 Principle 2Principle 2 The Economic and Social ImpactThe Economic and Social Impact
of Business: Toward Innovation, Justice, andof Business: Toward Innovation, Justice, and
World CommunityWorld Community

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The Caux Round TableThe Caux Round Table Principles:Principles: (continued)(continued)
 Principle 3Principle 3 Business Behavior: Beyond theBusiness Behavior: Beyond the
Letter of Law Toward a Spirit of TrustLetter of Law Toward a Spirit of Trust
 Principle 4Principle 4 Respect for RulesRespect for Rules
 Principle 5Principle 5 Support for Multilateral TradeSupport for Multilateral Trade
 Principle 6Principle 6 Respect for the EnvironmentRespect for the Environment
 Principle 7Principle 7 Avoidance of Illicit OperationsAvoidance of Illicit Operations

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Theories of Social ResponsibilityTheories of Social Responsibility
MaximizingMaximizing
ProfitsProfits
MoralMoral
MinimumMinimum
StakeholderStakeholder
InterestInterest
CorporateCorporate
CitizenshipCitizenship

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Maximizing ProfitsMaximizing Profits
 A theory of social responsibility that says aA theory of social responsibility that says a
corporation owes a duty to take actions thatcorporation owes a duty to take actions that
maximize profits for shareholders.maximize profits for shareholders.
 The interests of other constituencies are notThe interests of other constituencies are not
important in and of themselves.important in and of themselves.

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Moral MinimumMoral Minimum
 A theory of social responsibility that says aA theory of social responsibility that says a
corporation’s duty is to make a profit whilecorporation’s duty is to make a profit while
avoiding harm to othersavoiding harm to others..
 As long as business avoids or corrects theAs long as business avoids or corrects the
social injury it causes, it has met its duty ofsocial injury it causes, it has met its duty of
social responsibility.social responsibility.

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Moral MinimumMoral Minimum (continued)(continued)
 The legislative and judicial branches ofThe legislative and judicial branches of
government have established laws thatgovernment have established laws that
enforce the moral minimum of socialenforce the moral minimum of social
responsibility on corporations.responsibility on corporations.
 e.g., Occupational safety lawse.g., Occupational safety laws
 e.g., Consumer protection laws for producte.g., Consumer protection laws for product
safetysafety

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Stakeholder InterestStakeholder Interest
 A theory of social responsibility that says aA theory of social responsibility that says a
corporation must consider the effects itscorporation must consider the effects its
actions have on personsactions have on persons other than itsother than its
stockholdersstockholders..
 This theory is criticized because it is difficultThis theory is criticized because it is difficult
to harmonize the conflicting interests ofto harmonize the conflicting interests of
stakeholders.stakeholders.

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Other Stakeholders of a BusinessOther Stakeholders of a Business
CustomersCustomers
EmployeesEmployees SuppliersSuppliers
LocalLocal
CommunityCommunity
CreditorsCreditors

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Corporate CitizenshipCorporate Citizenship
 A theory of responsibility that says aA theory of responsibility that says a
business has a responsibility to do good.business has a responsibility to do good.
 Business is responsible for helping to solveBusiness is responsible for helping to solve
social problems.social problems.
 Corporations owe a duty to promote theCorporations owe a duty to promote the
same social goals as do individual memberssame social goals as do individual members
of society.of society.

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Corporate CitizenshipCorporate Citizenship (continued)(continued)
 This theory argues that corporations owe aThis theory argues that corporations owe a
debt to society to make it a better place.debt to society to make it a better place.
 This duty arises because of the social powerThis duty arises because of the social power
bestowed on corporations.bestowed on corporations.
 A major criticism of this theory is that theA major criticism of this theory is that the
duty of a corporation to “do good” cannot beduty of a corporation to “do good” cannot be
expanded beyond certain limits.expanded beyond certain limits.

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Theories of Social Responsibility – SummaryTheories of Social Responsibility – Summary
TheoryTheory Social ResponsibilitySocial Responsibility
Maximizing profitsMaximizing profits To maximize profits for stockholders.To maximize profits for stockholders.
Moral minimumMoral minimum To avoid causing harm and to compensate forTo avoid causing harm and to compensate for
harm caused.harm caused.
Stakeholder interestStakeholder interest To consider the interests of all stakeholders,To consider the interests of all stakeholders,
including stockholders, employees, customers,including stockholders, employees, customers,
suppliers, creditors, and local community.suppliers, creditors, and local community.
Corporate citizenshipCorporate citizenship To do good and solve social problemsTo do good and solve social problems

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The Corporate Social AuditThe Corporate Social Audit
 Corporate audits should be extended toCorporate audits should be extended to
include theinclude the moral healthmoral health of the corporation.of the corporation.
 Corporations that conduct social audits willCorporations that conduct social audits will
be more apt to prevent unethical and illegalbe more apt to prevent unethical and illegal
conduct by managers, employees, andconduct by managers, employees, and
agents.agents.

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The Corporate Social AuditThe Corporate Social Audit (continued)(continued)
 The audit would examine how well:The audit would examine how well:
 Employees have adhered to the company’sEmployees have adhered to the company’s
code of ethics; andcode of ethics; and
 The corporation has met its duty of socialThe corporation has met its duty of social
responsibility.responsibility.

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The Corporate Social AuditThe Corporate Social Audit (continued)(continued)
 Such audits would focus on the corporation’sSuch audits would focus on the corporation’s
efforts to:efforts to:
 Promote employment opportunities forPromote employment opportunities for
members of protected classesmembers of protected classes
 Worker safetyWorker safety
 Environmental protectionEnvironmental protection
 Consumer protectionConsumer protection

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The Corporate Social AuditThe Corporate Social Audit (continued)(continued)
Companies should institute the followingCompanies should institute the following
procedures when conducting a social audit:procedures when conducting a social audit:
 An independent outside firm should be hiredAn independent outside firm should be hired
to conduct the audit.to conduct the audit.
 This will ensure autonomy and objectivity.This will ensure autonomy and objectivity.
 The company’s personnel should cooperateThe company’s personnel should cooperate
fully with the auditing firm while the audit isfully with the auditing firm while the audit is
being conducted.being conducted.

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The Corporate Social AuditThe Corporate Social Audit (continued)(continued)
Procedures for conducting the auditProcedures for conducting the audit (continued):(continued):
 The auditing firm should report its findingsThe auditing firm should report its findings
directly to the company’s board of directors.directly to the company’s board of directors.
 The results of the audit should be reviewedThe results of the audit should be reviewed
by the company’s board of directors.by the company’s board of directors.

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The Corporate Social AuditThe Corporate Social Audit (continued)(continued)
Procedures for conducting the auditProcedures for conducting the audit (continued):(continued):
 The board of directors should determine howThe board of directors should determine how
the company can:the company can:
 Better meet its duty of social responsibility;Better meet its duty of social responsibility;
andand
 Use the audit to implement a program toUse the audit to implement a program to
correct any deficiencies it finds.correct any deficiencies it finds.

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United Nations Code of Conduct forUnited Nations Code of Conduct for
Transnational CorporationsTransnational Corporations
 Respect for National SovereigntyRespect for National Sovereignty
 Adherence to Socio-Cultural Objectives andAdherence to Socio-Cultural Objectives and
ValuesValues
 Respect for Human Rights and FundamentalRespect for Human Rights and Fundamental
FreedomsFreedoms
 Abstention from Corrupt PracticesAbstention from Corrupt Practices