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  • Business law

    1. 1. Chapter 7 Ethics and Social Responsibility of Business
    2. 2. Introduction <ul><li>Businesses organized in the United States are subject to its laws. </li></ul><ul><li>They are also subject to the laws of other countries in which they operate. </li></ul><ul><li>Business persons owe a duty to act ethically in the conduct of their affairs. </li></ul><ul><li>Businesses owe a social responsibility not to harm society. </li></ul>
    3. 3. Law and Ethics <ul><li>Ethics – A set of moral principles or values that governs the conduct of an individual or a group. </li></ul><ul><li>What is lawful conduct is not always ethical conduct. </li></ul><ul><ul><li>The law may permit something that would be ethically wrong. </li></ul></ul>
    4. 4. Moral Theories and Business Ethics Ethical Relativism Ethical Fundamentalism Utilitarianism Kantian Ethics Rawls’s Social Justice Theory
    5. 5. Ethical Fundamentalism <ul><li>Ethical fundamentalism - When a person looks to an outside source for ethical rules or commands. </li></ul><ul><li>Critics argue that ethical fundamentalism does not permit people to determine right and wrong for themselves. </li></ul>
    6. 6. Utilitarianism <ul><li>A moral theory that dictates that people must choose the action or follow the rule that provides the greatest good to society . </li></ul><ul><li>This does not mean the greatest good for the greatest number of people. </li></ul><ul><li>Has been criticized because it is difficult to estimate the “good” that will result from different actions. </li></ul>
    7. 7. Kantian Ethics (Duty Ethics) <ul><li>A moral theory that says people owe moral duties that are based on universal rules . </li></ul><ul><li>Based on the premise that people can use reasoning to reach ethical decisions. </li></ul><ul><li>This theory would have people behave according to the categorical imperative : </li></ul><ul><ul><li>“Do unto others as you would have them do unto you.” </li></ul></ul>
    8. 8. Kantian Ethics (Duty Ethics) (continued) <ul><li>Deontology’s universal rules are based on two important principles: </li></ul><ul><ul><li>Consistency – all cases are treated alike with no exceptions. </li></ul></ul><ul><ul><li>Reversibility – the actor must abide by the rule he or she uses to judge the morality of someone else’s conduct. </li></ul></ul>
    9. 9. Kantian Ethics (Duty Ethics) (continued) <ul><li>Thus, if you are going to make an exception for yourself, that exception becomes a universal rule that applies to all others. </li></ul><ul><li>A criticism of this theory is that it is hard to reach a consensus as to what the universal rules should be. </li></ul>
    10. 10. Rawls’s Social Justice Theory <ul><li>Rawls’s social contract </li></ul><ul><li>A moral theory that says each person is presumed to have entered into a social contract, with all others in society, to obey moral rules that are necessary for people to live in peace and harmony. </li></ul>
    11. 11. Rawls’s Social Justice Theory (continued) <ul><li>Rawls’s Distributive Justice Theory </li></ul><ul><ul><li>Fairness is considered the essence of justice. </li></ul></ul><ul><ul><li>The principles of justice should be chosen by persons who do not yet know their station in society. </li></ul></ul><ul><ul><li>This “veil of ignorance” would permit the fairest possible principles to be selected. </li></ul></ul>
    12. 12. Rawls’s Social Justice Theory (continued) <ul><li>There are two major criticisms of this theory: </li></ul><ul><ul><li>Establishing the blind “original position” for choosing moral principles is impossible in the real world. </li></ul></ul><ul><ul><li>Many persons in society would choose not to maximize the benefit to the least advantaged persons in society. </li></ul></ul>
    13. 13. Ethical Relativism <ul><li>A moral theory that holds that individuals must decide what is ethical based on their own feelings as to what is right or wrong . </li></ul><ul><li>There are no universal ethical rules to guide a person’s conduct. </li></ul><ul><li>If a person meets his or her own moral standard in making a decision, no one can criticize him or her for it. </li></ul>
    14. 14. Ethical Relativism (continued) <ul><li>A criticism of this theory is that an action usually thought to be unethical would not be unethical if the perpetrator thought it was in fact ethical. </li></ul>
    15. 15. Theories of Ethics – Summary (1 of 2) A set of universal rules establishes ethical duties. The rules are based on reasoning and require (1) consistency in application and (2) reversibility. Kantian ethics Persons choose the alternative that would provide the greatest good to society. Utilitarianism Persons look to an outside source or central figure for ethical guidelines. Ethical fundamentalism Description Theory
    16. 16. Theories of Ethics – Summary (2 of 2) Individuals decide what is ethical based on their own feelings as to what is right or wrong. Ethical relativism Moral duties are based on an implied social contract. Fairness is justice. Rules are established from an original position. Rawls’s social justice theory Description Theory
    17. 17. The Social Responsibility of Business <ul><li>Business does not operate in a vacuum. </li></ul><ul><li>Decisions made by business have far-reaching effects on society. </li></ul><ul><li>In the past, many business decisions were made solely on a cost-benefit analysis. </li></ul><ul><ul><li>“Bottom line” impact. </li></ul></ul>
    18. 18. The Social Responsibility of Business (continued) <ul><li>Such decisions may cause negative externalities for others. </li></ul><ul><li>Corporations are considered to owe some degree of social responsibility for their actions. </li></ul>
    19. 19. Ethics Brief Corporations that conduct social audits will be more apt to prevent unethical and illegal conduct by managers, employees, and agents.
    20. 20. The Social Responsibility of Business (continued) <ul><li>Ethics is a function of history, culture, religion, and other factors. </li></ul><ul><li>Therefore, ethical standards vary from country to country. </li></ul><ul><li>The Caux Round Table promulgated an international ethics code called the Principles for International Business . </li></ul>
    21. 21. The Caux Round Table Principles: <ul><li>Principle 1 The Responsibilities of Business Beyond Shareholders Toward Shareholders </li></ul><ul><li>Principle 2 The Economic and Social Impact of Business: Toward Innovation, Justice, and World Community </li></ul>
    22. 22. The Caux Round Table Principles: (continued) <ul><li>Principle 3 Business Behavior: Beyond the Letter of Law Toward a Spirit of Trust </li></ul><ul><li>Principle 4 Respect for Rules </li></ul><ul><li>Principle 5 Support for Multilateral Trade </li></ul><ul><li>Principle 6 Respect for the Environment </li></ul><ul><li>Principle 7 Avoidance of Illicit Operations </li></ul>
    23. 23. Theories of Social Responsibility Maximizing Profits Moral Minimum Stakeholder Interest Corporate Citizenship
    24. 24. Maximizing Profits <ul><li>A theory of social responsibility that says a corporation owes a duty to take actions that maximize profits for shareholders. </li></ul><ul><li>The interests of other constituencies are not important in and of themselves. </li></ul>
    25. 25. Moral Minimum <ul><li>A theory of social responsibility that says a corporation’s duty is to make a profit while avoiding harm to others . </li></ul><ul><li>As long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility. </li></ul>
    26. 26. Moral Minimum (continued) <ul><li>The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility on corporations. </li></ul><ul><ul><li>e.g., Occupational safety laws </li></ul></ul><ul><ul><li>e.g., Consumer protection laws for product safety </li></ul></ul>
    27. 27. Stakeholder Interest <ul><li>A theory of social responsibility that says a corporation must consider the effects its actions have on persons other than its stockholders . </li></ul><ul><li>This theory is criticized because it is difficult to harmonize the conflicting interests of stakeholders. </li></ul>
    28. 28. Other Stakeholders of a Business Customers Employees Suppliers Local Community Creditors
    29. 29. Corporate Citizenship <ul><li>A theory of responsibility that says a business has a responsibility to do good. </li></ul><ul><li>Business is responsible for helping to solve social problems. </li></ul><ul><li>Corporations owe a duty to promote the same social goals as do individual members of society. </li></ul>
    30. 30. Corporate Citizenship (continued) <ul><li>This theory argues that corporations owe a debt to society to make it a better place. </li></ul><ul><ul><li>This duty arises because of the social power bestowed on corporations. </li></ul></ul><ul><li>A major criticism of this theory is that the duty of a corporation to “do good” cannot be expanded beyond certain limits. </li></ul>
    31. 31. Theories of Social Responsibility – Summary To do good and solve social problems Corporate citizenship To consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and local community. Stakeholder interest To avoid causing harm and to compensate for harm caused. Moral minimum To maximize profits for stockholders. Maximizing profits Social Responsibility Theory
    32. 32. The Corporate Social Audit <ul><li>Corporate audits should be extended to include the moral health of the corporation. </li></ul><ul><li>Corporations that conduct social audits will be more apt to prevent unethical and illegal conduct by managers, employees, and agents. </li></ul>
    33. 33. The Corporate Social Audit (continued) <ul><li>The audit would examine how well: </li></ul><ul><ul><li>Employees have adhered to the company’s code of ethics; and </li></ul></ul><ul><ul><li>The corporation has met its duty of social responsibility. </li></ul></ul>
    34. 34. The Corporate Social Audit (continued) <ul><li>Such audits would focus on the corporation’s efforts to: </li></ul><ul><ul><li>Promote employment opportunities for members of protected classes </li></ul></ul><ul><ul><li>Worker safety </li></ul></ul><ul><ul><li>Environmental protection </li></ul></ul><ul><ul><li>Consumer protection </li></ul></ul>
    35. 35. The Corporate Social Audit (continued) <ul><li>Companies should institute the following procedures when conducting a social audit: </li></ul><ul><li>An independent outside firm should be hired to conduct the audit. </li></ul><ul><ul><li>This will ensure autonomy and objectivity. </li></ul></ul><ul><li>The company’s personnel should cooperate fully with the auditing firm while the audit is being conducted. </li></ul>
    36. 36. The Corporate Social Audit (continued) <ul><li>Procedures for conducting the audit (continued): </li></ul><ul><li>The auditing firm should report its findings directly to the company’s board of directors. </li></ul><ul><li>The results of the audit should be reviewed by the company’s board of directors. </li></ul>
    37. 37. The Corporate Social Audit (continued) <ul><li>Procedures for conducting the audit (continued): </li></ul><ul><li>The board of directors should determine how the company can: </li></ul><ul><ul><li>Better meet its duty of social responsibility; and </li></ul></ul><ul><ul><li>Use the audit to implement a program to correct any deficiencies it finds. </li></ul></ul>
    38. 38. United Nations Code of Conduct for Transnational Corporations <ul><li>Respect for National Sovereignty </li></ul><ul><li>Adherence to Socio-Cultural Objectives and Values </li></ul><ul><li>Respect for Human Rights and Fundamental Freedoms </li></ul><ul><li>Abstention from Corrupt Practices </li></ul>