Introducing Business Ethics

Lecture 1

OverviewOverview

• What is business ethics?What is business ethics?• Why is business ethics important? • Globalization: a key context for businessGlobalization: a key context for business

ethics?• Sustainability: a key goal for business ethics?Sustainability: a key goal for business ethics?

What is business ethics?What is business ethics?

Business ethics is the study of businessBusiness ethics is the study of business situations, activities, and decisions where issues of right and wrong arewhere issues of right and wrong are addressed.

Ethics and the lawEthics and the law

Ethics

greyarea

Law

Defining morality, ethics and ethical theory

• Morality is concerned with the norms values• Morality is concerned with the norms, values and beliefs embedded in social processes which define right and wrong for an individual or a community.

• Ethics is concerned with the study of morality and the application of reason to elucidateand the application of reason to elucidate specific rules and principles that determine right and wrong for any given situation. g g y g

• These rules and principles are called ethical theories.

The relationship between morality, ethics and ethical theory

…that can be applied

… to produce ethical

Ethics rationalizes morality

to any situation.

theory …s morality …

Morality Ethics Ethical theory

Potential solutions to

ethical problemsproblems

Why is business ethics important?Why is business ethics important?

1. Power and influence of business in society1. Power and influence of business in society2. Potential to provide major contribution to society 3 Potential to inflict harm3. Potential to inflict harm 4. Increasing demands from stakeholders 5 Lack of business ethics education or training5. Lack of business ethics education or training6. Continued occurrence of ethical infractions7 Evaluating different ways of managing business7. Evaluating different ways of managing business

ethics8 Interesting and rewarding8. Interesting and rewarding

Types of misconduct across sectorsTypes of misconduct across sectors30

24%22%

27%

24%25%

20 Res

ourc

e C

ente

r

21%19%

22%20%

21%20

© 2

008

Eth

ics

R

10Nonprofit

Business

Government

0

Putting own interests

ahead of org

Lying to employees

Abusive behavior

Source: Ethics Resource Center (2008)

Observed ethical misconduct across sectors

75%

56%55% 52%

57%57%

52%

60%

50% s R

esou

rce

Cen

ter

46%

43%

49%

55%46%50%

© 2

008

Eth

ics

Nonprofit

25%Business

Government

0%

2000 2003 2005 2007

Source: Ethics Resource Center (2008)

Differences across organizational typesDifferences across organizational types

Stakeholders Public sector Civil society Small Large

Financial integrity, employee/customer

organizations

Main priorities in addressing

yorganizationsbusinesses

gcorporations

Rule of law, corruption, conflict of

Delivery of mission to clients; integrity of

Financial integrity, employee/customer p y

issues

Formal, public relations and/or

gethical issues

Approach to managing

p ,interest; procedural & accountability issues

; g ytactics; legitimacy and accountability

p yissues

Formal, bureaucratic Informal, values-based

Informal, trust-basedrelations and/or

systems-based

Shareholders and other stakeholders

Responsible and/or

managing ethics

basedbased

General public, higher level government

Donors and clientsOwners

Shareholder orientation; size and

and/or accountable to

Main constraints

gorganizations

Inertia, lack of transparency

Lack of resources and formal training

Lack of resources and attention

complexity

Globalization: a key context for ybusiness ethics?

What is globalization?What is globalization?

• According to Scholte (2005) globalization is notis not:According to Scholte (2005) globalization is notis not:– ‘internationalization’ – ‘liberalization’ – ‘universalization’ – ‘westernization’

• Globalization isis: a process which diminishes the necessity of a common and shared territorial b i f i l i d liti lbasis for social, economic, and political activities, processes, and relations.

‘deterritorialization’– deterritorialization

Relevance of globalization for business ethics

• Cultural issues• Legal issuesLegal issues• Accountability issues

Globalization can affect all stakeholders of the corporationcorporation

Ethical impacts of globalizationEthical impacts of globalizationStakeholders Ethical impacts of globalization

Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of global capital markets, leading to additional financial risks and instability.

Corporations outsource production to developing countries in order to reduce costs in global marketplace this provides jobs but also raises the potential for exploitation of employees

Stakeholders

E l marketplace - this provides jobs but also raises the potential for exploitation of employees through poor working conditions.

Global products provide social benefits to consumers across the globe, but may also meet protests about cultural imperialism and westernization. Globalization can bring cheaper prices to customers, but vulnerable consumers in developing countries may also face the

Employees

Consumers prices to customers, but vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs.

Suppliers in developing countries face regulation from MNCs through supply chain management. Small scale indigenous competitors exposed to powerful global players.

Gl b l b i i i i b i h i di i i l l i i

Suppliers & competitors

Global business activities brings the company in direct interaction to local communities with possibility for erosion of traditional community life; globally active pressure groups emerge with aim to “police“ the corporation where governments are weak and tolerant.

Civil society (NGOs, etc)

Government &Globalization weakens governments and increases the corporate responsibility for jobs, welfare maintenance of ethical standards etc Globalization also confronts governmentsGovernment &

regulationwelfare, maintenance of ethical standards, etc. Globalization also confronts governments with corporations from different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy.

International perspectives on p pbusiness ethics

Different approaches to business ethics

• Who is responsible for ethical conduct inWho is responsible for ethical conduct in business?

• Who is the key actor in business ethics? y• What are the key ethical guidelines for ethical

behaviour? • What are the key issues in business ethics? • What is the most dominant stakeholder at s t e ost do a t sta e o de

management approach?

Regional differences: Europe, North America, Asia

Europe N. America Asia

The individualWho is responsible for ethical conduct in business?

Top managementSocial control by the collective

Who is the key actor in business ethics?

Wh h k id li f

Government, corporations

M i l

The corporation

Corporate codes of

Government, trade unions, corporate associations

N ti t d l lWhat are the key guidelines for ethical behaviour?

What are the key issues in b i hi ?

Managerial discretion

Corporate governance and

Corporate codes of ethics

Misconduct and immorality in single

Negotiated legal framework of business

Social issues in organizing thebusiness ethics?

What is the dominant stakeholder management approach?

governance and accountability

Implicit multiple stakeholder

immorality in single decisions situations

Focus on shareholder value

organizing the framework of business

Formalised multiple stakeholder approachmanagement approach? approach, benign

managerialism

Sustainability: a key goal for y y gbusiness ethics?

Defining sustainabilityDefining sustainability

• Sustainable development is developmentSustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (World Commission on Environment and Development 1987)

• Sustainability refers to the long-term maintenance of systems according to environmental economic and socialenvironmental, economic and social considerations

The three components of t i bilitsustainability

Economic Social

Environmental

Triple bottom lineTriple bottom line

• Coined by John ElkingtonCoined by John Elkington• Bottom line thinking suggests sustainability as

a goalg• Three dimensions:

– Environmental perspectivesp p– Economic perspectives– Social perspectives

Corporate commitments to sustainability

Company Sustainability statement Source“At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support

f h h ld d h i i i hi h ”

BP Sustainability Report, 2007

of our customers, shareholders and the communities in which we operate.” “[Sustainability] means enhancing our relationship with host and partner governments, building consumer confidence in diamonds, and ensuring our activities contribute positively to … both present and future generations.”

DeBeers www.debeersgroup.com, 2009

“Corporate responsibility (CR) at Nokia is a collective effort. We believe that management of CR issues is most effective when sustainability policies and programs are embedded in every aspect of our operations. ” “ [For Toyota, a guiding principle is] ‘contributing to the development of a

i h h h f f bil ’ ‘C ib i

Nokia CSR Report, 2007

S t i bilitprosperous society through the manufacture of automobiles.’ ‘Contributing to the development of a prosperous society’ means ‘contributing to the sustainable development of the earth.’” “Values, social responsibility and active sustainability are integral [to] our company culture. We are future-oriented in our approach to important issues

Toyota

V lk

Sustainability Report, 2008

www.volkswagecompany culture. We are future oriented in our approach to important issues such as climate change. We operate a broad range of [R&D] activities and provide trend-setting approaches to the mobility of tomorrow.”

Volkswagen www.volkswagenag.com, 2009

SummarySummary

• Definition of business ethicsDefinition of business ethics• Business ethics is vital for business in

contemporary capitalismp y p• Global view is essential to understand ethical

issues• Different regions have distinctly different

perspective on business ethics issues• Sustainability is an important goal for

business ethics