Chapter 6 Ethics and Social Responsibility of Business

Slides developed byLes Wiletzky Copyright © 2006 by Pearson Prentice-Hall. All rights reserved

PowerPoint Slides to AccompanyESSENTIALS OF BUSINESS AND

ONLINE COMMERCE LAW1st Edition

by Henry R. Cheeseman

Chapter 6Ethics and Social Responsibility of Business

Chapter 6Ethics and Social Responsibility of Business

Copyright © 2006 by Pearson Prentice-Hall. All rights reserved. 06 - 2

Introduction Businesses organized in the United States

are subject to its laws They are also subject to the laws of other

countries in which they operate Business persons owe a duty to act ethically

in the conduct of their affairs Businesses owe a social responsibility not to

harm society


Ethics EthicsEthics – A set of moral principles or values

that governs the conduct of an individual or a group

What is lawful conduct is not always ethical conduct The law may permit something that would be

ethically wrong


Law and Ethics

Law Ethics


The Caux Round Table Principles for International Business (1 of 2)

Principle 1Principle 1 The Responsibilities of Business Beyond Shareholders Toward Shareholders

Principle 2Principle 2 The Economic and Social Impact of Business: Toward Innovation, Justice, and World Community

Principle 3Principle 3 Business Behavior: Beyond the Letter of Law Toward a Spirit of Trust

Principle 1Principle 1 The Responsibilities of Business Beyond Shareholders Toward Shareholders

Principle 2Principle 2 The Economic and Social Impact of Business: Toward Innovation, Justice, and World Community

Principle 3Principle 3 Business Behavior: Beyond the Letter of Law Toward a Spirit of Trust


The Caux Round Table Principles for International Business (2 of 2)

Principle 4Principle 4 Respect for Rules

Principle 5Principle 5 Support for Multilateral Trade

Principle 6Principle 6 Respect for the Environment

Principle 7Principle 7 Avoidance of Illicit Operations

Principle 4Principle 4 Respect for Rules

Principle 5Principle 5 Support for Multilateral Trade

Principle 6Principle 6 Respect for the Environment

Principle 7Principle 7 Avoidance of Illicit Operations


Moral Theories and Business Ethics:Ethical Fundamentalism Ethical fundamentalismEthical fundamentalism - When a person

looks to an outside source for ethical rules or commands

Critics argue that ethical fundamentalism does not permit people to determine right and wrong for themselves


Moral Theories and Business Ethics: Utilitarianism A moral theory that dictates that people must

choose the action or follow the rule that provides the greatest good to societygood to society

This does not mean the greatest good for the greatest number of people

Has been criticized because it is difficult to estimate the “good” that will result from different actions


Moral Theories and Business Ethics: Kantian Ethics (Duty Ethics) A moral theory that says people owe moral

duties that are based on universal rulesuniversal rules Based on the premise that people can use

reasoning to reach ethical decisions This theory would have people behave

according to the categorical imperative: “Do unto others as you would have them

do unto you.”


Moral Theories and Business Ethics: Rawls’s Social Justice Theory (1 of 3)

Rawls’s social contractRawls’s social contract

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



Rawls’s Distributive Justice TheoryRawls’s Distributive Justice Theory Fairness is considered the essence of justice The principles of justice should be chosen by

persons who do not yet know their station in society

This “veil of ignorance”“veil of ignorance” would permit the fairest possible principles to be selected



There are two major criticisms of this theory:1. Establishing the blind “original position” for

choosing moral principles is impossible in the real world

2. Many persons in society would choose not to maximize the benefit to the least advantaged persons in society


Moral Theories and Business Ethics: Ethical Relativism (1 of 2)

A moral theory that holds that individuals must individuals must decide what is ethical based on their own decide what is ethical based on their own feelings as to what is right or wrongfeelings as to what is right or wrong

There are no universal ethical rules to guide a person’s conduct

If a person meets his or her own moral standard in making a decision, no one can criticize him or her for it


Moral Theories and Business Ethics: Ethical Relativism (2 of 2)

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


Theories of Ethics – Summary (1 of 2)

Theory Description

Ethical fundamentalism

Persons look to an outside source or central figure for ethical guidelines.

Utilitarianism Persons choose the alternative that would provide the greatest good to society.

Kantian ethics A set of universal rules establishes ethical duties. The rules are based on reasoning and require (1) consistency in application and (2) reversibility.


Theories of Ethics – Summary (2 of 2)

Theory Description

Rawls’s social justice theory

Moral duties are based on an implied social contract. Fairness is justice. Rules are established from an original position.

Ethical relativism Individuals decide what is ethical based on their own feelings as to what is right or wrong.


Business Ethics:Sarbanes-Oxley Act of 2002 Makes certain conduct illegal Establishes criminal penalties for violations Prompts companies to encourage senior

officers of public companies to act ethically in their dealings with shareholders, employees, and other constituents


United Nations Code of Conduct for Transnational Corporations Respect for National Sovereignty Adherence to Socio-Cultural Objectives and

Values Respect for Human Rights and Fundamental

Freedoms Abstention from Corrupt Practices


The Social Responsibility of Business Business does not operate in a vacuum Decisions made by business have far-reaching

effects on society In the past, many business decisions were made

solely on a cost-benefit analysis Such decisions may cause negative externalities for

others Corporations are considered to owe some degree of

social responsibilitysocial responsibility for their actions

Business does not operate in a vacuum Decisions made by business have far-reaching

effects on society In the past, many business decisions were made

solely on a cost-benefit analysis Such decisions may cause negative externalities for

others Corporations are considered to owe some degree of

social responsibilitysocial responsibility for their actions


1. Maximizing Profits 2. Moral Minimum

3. StakeholderInterest

4. CorporateCitizenship

Theories of the Social Responsibility of Business


Maximizing Profits A theory of social responsibility that says a

corporation owes a duty to take actions that maximize profits for shareholders

The interests of other constituencies are not important in and of themselves


Moral Minimum (1 of 2)

A theory of social responsibility that says a corporation’s duty is to make a profit while avoiding harm to othersavoiding harm to others

As long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility


Moral Minimum (2 of 2)

The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility on corporations: e.g., Occupational safety laws e.g., Consumer protection laws for product

safety


Stakeholder Interest A theory of social

responsibility that says a corporation must consider the effects its actions have on persons other than its other than its stockholdersstockholders

This theory is criticized because it is difficult to harmonize the conflicting interests of stakeholders

A theory of social responsibility that says a corporation must consider the effects its actions have on persons other than its other than its stockholdersstockholders

This theory is criticized because it is difficult to harmonize the conflicting interests of stakeholders

Other stakeholders of business:

Employees Suppliers Customers Creditors Local community

Other stakeholders of business:

Employees Suppliers Customers Creditors Local community


Corporate Citizenship (1 of 2)

A theory of responsibility that says a business has a responsibility to do good

Business is responsible for helping to solve social problems

Corporations owe a duty to promote the same social goals as do individual members of society


Corporate Citizenship (2 of 2)

This theory argues that corporations owe a debt to society to make it a better place This duty arises because of the social power

bestowed on corporations A major criticism of this theory is that the duty

of a corporation to “do good” cannot be expanded beyond certain limits


Theories of Social Responsibility – Summary Theory Social Responsibility

Maximizing profits To maximize profits for stockholders.

Moral minimum To avoid causing harm and to compensate for harm caused.

Stakeholder interest To consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and local community.

Corporate citizenship To do good and solve social problems


The Corporate Social Audit (1 of 2)

Corporate audits should be extended to include the moral healthmoral health of the corporation

Corporations that conduct social audits will be more apt to prevent unethical and illegal conduct by managers, employees, and agents


The Corporate Social Audit (2 of 2)

The audit would examine how well: Employees have adhered

to the company’s code of ethics; and

The corporation has met its duty of social responsibility

The audit would examine how well: Employees have adhered

to the company’s code of ethics; and

The corporation has met its duty of social responsibility

Such audits would focus on the corporation’s efforts to: Promote employment

opportunities for members of protected classes

Worker safety Environmental protection Consumer protection

Such audits would focus on the corporation’s efforts to: Promote employment

opportunities for members of protected classes

Worker safety Environmental protection Consumer protection


Company Procedures for Conducting a Social Audit (1 of 2)

An independent outside firm should be hired to conduct the audit This will ensure autonomy and objectivity

The company’s personnel should cooperate fully with the auditing firm while the audit is being conducted

The auditing firm should report its findings directly to the company’s board of directors


Company Procedures for Conducting a Social Audit (2 of 2)

The results of the audit should be reviewed by the company’s board of directors

The board of directors should determine how the company can: Better meet its duty of social responsibility; and Use the audit to implement a program to correct any

deficiencies it finds

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Chapter 6 Ethics and Social Responsibility of Business

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