Business Ethics Unit-1 03

8/4/2019 Business Ethics Unit-1 03

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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 thecompany 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 competitiveadvantage ?



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 one’s

moral standards or moral standards of thesociety /business.

• Descriptive and normative ethicsWhat 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

moralityTo 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 orcodification of ethics in to specific rules ,regulation or proscription .

•Law minimum acceptable standards of orbehaviour : Divorce / drive or walk on the rightside 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 generationto 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 andenvironment

• There is tradeoff between environment ,economic and social concerns. There aredetrimental effects and also benefits .

• No one has the right to mortgage future but tolive and live happily is also a right of presentgeneration

• World Commission on Environment andDevelopment’s primary espoused aim is toeradicate 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 world’s GDP belongs to 1

billion ( about 16 percent population )

• The Chasm between skilled and unskilledworker, formal and informal economies,growing disparities in access to health,

education, and social and politicalparticipation .

• How Business can respond to these challenges



The Social ContextMillennium 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 therelevance of territorial bases for social ,economic and political activities , process and

relations• Cultural Issues : contradictory ethical standard.

• Close connection between local culture andmoral values

• Legal issues – Global financial transactions arebeyond 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 oncapitalism'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 itsowners 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 DebateA 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 corporationbeyond profit maximization

More satisfied consumer

Environmental Groups, Child labour & Boycottof 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 : GreaterCorporate Autonomy

( Recent increase price of steel price and Government’s 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 survive3. 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 havelegitimate 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 Perspective1. Externalities

2. 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

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Business Ethics Unit-1 03

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