Business ethics

& social impact

Daniela Pianezzi
[email protected]

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In the previous lessons...

 Organizations studies: theories and key

concepts
 Fundamentals of organization structures
 Organization as open systems : the external
environment
 Organization size, life cycle, and decline
 Organization culture and control
 Interorganizational relationships
 Business ethics & social impact!

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Learning objectives

Organizational ethics
 Understanding the meaning of individual
and organizational ethics
 Critically reflecting on mechanisms for
managing organizational ethics
Corporate Social Responsibility
 Critically reflecting on corporate social
responsibility (CSR)
 Identifying the different CSR theories
 Critically reflecting on the mechanisms for
implementing CSR
An introduction to
ethics
There is not a single definition of ethics

The book “The definition of morality” originally

published in 1970 provides a wide range of
definitions suggesting that people have very
different view on what morality is.

However, let’s have a look at the meaning of

words:
 The word ‘ethics’ is from Ancient Greek êthos
(ἦθος), “character, moral nature”.
 The word ‘morality’ is from Late Latin mōrālitās
(“manner, characteristic, character”), from Latin
mōrālis (“relating to manners or morals”).
Our daily choices are
about ethics!

Should I buy or not buy coffee in a disposable cup?

…I like coffee, but I am concerned about contributing to the waste in a landfill…
…My students will benefit from my alertness due to coffee and they are not going to see my
waste…the landfill is far away…
….But what if everyone makes the same decision?....
…Millions of cup and waste will affect the life of people leaving in the landfill….
….Even if it seems to be good for me personally does not sound to be the right thing to do…
Organizational decisions
concern ethics (1)

Suppose an executive of a company

is considering whether to install a
better safety system in the
company’s factory in an overseas
location, which will reduce air
pollution inside the premises and
also reduce emissions.
Which factors does she need to
consider?

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Organizational decisions
concern ethics (2)

Economic: profitability.
Finance: borrowing can be an option, but the
benefits should outweigh the costs.
Legal: the hosting country has/hasn’t a safety
legislation
Ethical????

 The decision of installing a better safety system

affect the life of employees, the local community,
and customers (i.e. multiple stakeholders).

 Human rights: pollution can have long-term health

implications, as well as environmental impacts,
which can reach beyond immediate communities.
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Ethics is about actions and
identity

“Ethics is undoubtedly concerned with the question what

good conduct is” Moore, 1993.

The moral philosopher Adam Smith argued that in treating

the principles of morals, these are the two questions to be
considered:
1. Wherein does virtue consist?
2. What is the tone of temper and tenor of conduct which
constitutes the excellent and praiseworthy character?

In other words, how should we live?

Ethics is about our values

• Feelings are sometimes an indication of

what we value;
• Values are basic and fundamental beliefs
that guide or motivate our attitudes and
actions;

"A value is a conception, distinctive of an

individual or characteristic of a group, of
the desirable which influences the selection
from available modes, means, and ends of
action."
(Kluckhohn, 1962:395)
Ethics has been studied from different
perspectives

DESCRIPTIVE ETHICS NORMATIVE ETHICS APPLIED ETHICS META-ETHICS

HOW PEOPLE BEHAVE HOW SHOULD ONE ACT, THE ANALYSIS OF EXPLORATION OF THE
AND/OR WHAT SORTS MORALLY SPEAKING? SPECIFIC, STATUS, FOUNDATIONS,
OF MORAL STANDARDS CONTROVERSIAL MORAL AND SCOPE OF ETHICS
THEY CLAIM TO ISSUES
FOLLOW?

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Organizational ethics (the 'business ethics')

Business decision-making does not take place in a value-free vacuum.

Organizational ethics consists of principles that guide the decisions

and behaviors of organizational actors regarding whether they are
morally right or wrong.

 Business ethics focuses on the goals of the business, its

organizational values and its behaviour.
 Need to consider the global and local factors (cultural, legal,
political) that shape business structures and business
behaviour.
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New ethical challenges

Migrant labour Foreign migrants are the most vulnerable and it is difficult to hold
anyone accountable for breaches of human rights.

Privacy, data Means of acquiring data, the ways they are used and the types of
protection and data collected.
surveillance
Climate change Businesses’ environmental impacts are increasingly recognized as
unsustainable.

Financial Crisis Belief in free markets has been shaken and so too the ability of the
governments to regulate.

Inequality Concentration of wealth is accompanied by concentration of

economic and political power allowing wealthy elites to
perpetuate system which entrench inequalities.
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Actors, concepts and context in BE

What concepts involve ethics

Who decides what in business?
and how? • CSR
Actors, concepts
• Multinational and context in • Human rights
Enterprise MNE business ethics • Sustainability
– subsidiaries • Stakeholders
and affiliates
• Governments
• Stakeholders What are the environmental
factors?
• Globalization – competitive
advantage
• Localization
Factors:
Social and Cultural, Economic, Political, Legal, Financial, Natural Environment.
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The difference between ethics and law

Current laws often reflect moral judgements,

but not all moral judgements are codified
into law.
 Ethics is the set of principles and moral
values that govern the behavior of a
person or a group in relation to what is
right or wrong.
Ethical values set standards for what is
considered good or bad in conduct and
decision making.
 The rule of law arises from a set of
codified principles and regulations that
describe how people are required to act,
that are generally accepted in society and
that are enforceable in the courts.
Ethical standards vs legal requirements

 Ethical standards mostly apply to

aspects of behavior not regulated
by law, while a rule of law
concerns behaviors not necessarily
regulated by ethical standards.
 Laws in force often reflect a set of Legal Ethical
moral judgments, but not all moral requirements standards
judgments are codified by laws.
An ethical dilemma (1)

An ethical dilemma arises in a situation where it is necessary to establish

what is right and what is wrong, but it is impossible to do so clearly because
there is a conflict of values.

A trolley is running out of control down a track. In

its path are five people who have been tied to the
track by a mad philosopher. Fortunately, you
could flip a switch, which will lead the trolley
down a different track to safety. Unfortunately,
there is a single person tied to that track. Should
you flip the switch or do nothing?

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An ethical dilemma (2)

You are on a footbridge watching a trolley

speeding down a track that will kill five
unsuspecting people. You can push a fat man
over the bridge onto the tracks to save the
five. (You cannot stop the trolley by jumping
yourself, only the fat man is heavy enough.)
Would you do it?
The utilitarian approach

Cost-Benefit Approach:

Take any action;

Compute the benefits and harms of the consequences for everyone affected.
If the action brings more total happiness than unhappiness for more people, it
is justified. If it causes moral total unhappiness for more people, it is wrong.

CONSEQUENTIALISM:
Good consequences make it a
good action!
Different approaches raise different ethical questions

Moral-right view: Does a decision or behaviour maintain

the fundamental rights of all human beings?
Individualism view: Does a decision or behavior promote
one’s long-term self-interest?
Justice view: Does a decision or behavior show farness
and impartiality?
Utilitarian view: Does a decision or behavior do the
greatest good for the most people?
Real world dilemma
Better that one should die…

The Ford Pinto case

 In May of 1968, the Ford Motor Company decided to introduce a subcompact car
and produce it domestically. The Ford Pinto appeared on the market in 1970.

 The death of three women on August 10, 1978 when their car was hit by another
vehicle traveling at a relatively low speed initiated the lawsuits and scandals in
which Ford endured for decades focused on the design flaw of the gas tank.

 Evidence surfaced that the executives at Ford Motor Company were aware and
acknowledged that the design was flawed and potentially dangerous. A review of
the cost-benefit analysis was deemed insufficient and Ford opted not to change
the design of the fuel tank.
The Ford’s cost-benefit analysis
The case of Philip Morris

A report sent from business to government of the

Czech Republic suggest that the government could
save money on pension and health care costs
because people _ that they smoke they die at a
younger age .
The three levels of ethics

 Micro level
The rules for fair exchange between two individuals.
 Meso level
 the role of the individual in the organization.
 the role of the organization in society
 Macro level
The institutional or cultural rules of the market (commercial and
government regulations).

Source: Solomon (2002)

The role of the individual in
the organization
“Traitors” and whistleblowers
Individual ethics vs organizational ethics

Traitor or hero?

29-year-old computer scientist Edward Snowden has worked as

a consultant for several "suppliers" of the National Security
Agency - Nsa (the American agency that deals with national
security), the latest was Booz Allen Hamilton.

 In this role, he was able to see the whole mechanisms set

up by the American agency and he revealed them to the
whole world, thus breaking the rules of professional
confidentiality.
Individual ethics vs organizational ethics

Traitor or hero?
 Frances Haugen, 37, worked as a product
manager in the Facebook's civic integrity team.
Before leaving Facebook, she copied a series of
memos and internal documents. She shared
those documents with the Wall Street Journal.
 She said leaked documents showed that
Facebook has repeatedly prioritized "growth
over security".

"There were conflicts of interest between what

was good for the audience and what was good
for Facebook ... Facebook has always chosen to
optimize for their own interests, how to make
more money."
Structure and formal systems for organizational ethics

A set of tools that organizations can use to define organizational ethics is the
organization's formal structure and systems.

Structures:
cross-functional group of executives who oversee Chief ethics officer:
company ethics. The committee provides rulings
on questionable ethical issues and assumes a senior corporate executive who oversees all ethical aspects.
responsibility for disciplining wrongdoers.

Whistle-blowing mechanisms:
employees can report their suspicions of illegal, Code of ethics: formal declaration of corporate values
immoral or illegitimate activities through ethical toll- regarding ethics and social responsibility.
free numbers.

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The Whistleblowing

Whistleblowing is the action of those who decide to disclose illegal, irregular,

dangerous, immoral or illegitimate practices.

The 4 main reasons for non-reporting:

 The belief that no corrective action would
take place
 Fear of retaliation (e.g., dismissal,
demotion)
 Fear of not remaining anonymous
 The assumption that someone else would
The fraud triangle

Donald R. Cressey, a well-known

criminologist, developed the theory of the
Triangle of Fraud in his book Other People's
Money: A Study in the Social Psychology of
Embezzlement .

For fraud to occur, all three elements must

be present.

 Pressure
 Opportunity
 Rationalization How people rationalize fraud - Kelly Richmond Pope - YouTube

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The role of the
organization in society
Corporate Social Responsibility
The shareholders’ approach

From the 1970s, Chicago School of neoclassical economics:

The idea of shareholder primacy and profit maximization became the
predominant view of the purpose of the company.

 Faith in the markets

 Exclusive pursuit of the interest of the shareholders

The corporate social responsibility is to increase profits - within the rules of the game (no
deceit or fraud) - Milton Friedman (1962)
The stakeholders’approach

Over time, the shareholders’ approach

has been questioned.

Every business creates, and sometimes destroys, value

for customers, suppliers, employees, communities and
financiers. The idea that business is about maximizing
profits for shareholders is outdated and doesn’t work
very well, as the recent global financial crisis has taught
us. R. Edward Freeman (1984)

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Primary vs. Secondary stakeholders

Stakeholders are those who can influence or are influenced by the

achievement of the objectives of an organization.

Primary stakeholders:
Stakeholders who are directly Secondary Stakeholders:
involved in the business, and Stakeholders whose interests
whose interests are essential to are not so vital to the survival
its success. E.g.: shareholers, of the company. E.g.: media,
employees, suppliers and special interest groups.
customers.

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Stakeholders and the Social Responsibility of
Business
Corporate social responsibility
People: measure of
(CSR) is a concept whereby
social performance, organizations consider the needs of
employees
treatment, fair work all stakeholders when making
practices, etc. decisions.

 CSR extends beyond legal

Planet: compliance to include voluntary
Profit: financial
measures
environmental actions that satisfy stakeholder
measures
expectations.
The Corporate Social Responsibility (CSR)

CSR rests on the idea that the

Philanthropic
company has a broader range of Responsibility
responsibilities in society than
merely economic obligations.
Ethical
Responsibilities
 The term triple bottom line refers to
the measurement of
an organization's social, Legal Responsibilities
environmental and financial
performance.
Economic Responsibilities
CSR as a duty and a right

 Organizations have a duty to inform all stakeholders of their

business and social impact and balance the different
interests at stake.
 Society has the right to information.

For example, human rights

accountability involves public
disclosure of information relating to
the company’s protection and
enforcement of human rights.
Sustainable development

Sustainable development, is about the ethical duty of

equity: ‘intergenerational justice’.

“a development which meets the needs of current generations

without compromising the ability of future generations to meet
their own needs”. - Brundtland Commission, 1987, endorsed by
the Rio Summit of 1992.

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Sustainability Reporting

What do organizations, or more properly their managers, mean

when they report on sustainability?

Corporate sustainability reporting is an extension and

progression from earlier forms of corporate reporting to include
matters of an organization’s environmental policies and impacts
and its social policies and impacts.

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History of reporting

Triple Bottom
Line Reporting
Environmental •Since 2000
reporting •Linkage of
environmental,
Social reporting •Late 1980s and into economic and social
the early 1990s reporting
• Since 1960s and
1970s •See early reports •See also the
Employee from companies as
• Community concern Integrated Reporting
reporting diverse as Noranda
and a redefinition of
• Since 1900 (in Canada) and
employee rights as
Norsk Hydro (in
• Information: the major theme
Norway) in the early
dwellings built for 1990s.
workers; community
development;
worker safety; and
mortgage assistance
for employees.
Source: O'Dwyer et al. (2014) 40
The origins of the ethics of human rights

 1948: the Universal Declaration of Human Rights (UDHR), approved by

the General Assembly of the United Nations.

2 Human rights conventions:

 The International Covenant of Civil and Political Rights (ICCPR)
 The International Covenant of Economic, Social and Cultural Rights
(ICESCR)

The UDHR is now considered legally binding, but it is more appropriate to

attribute its legal authority to the consent it enjoys between states.
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Organizational ethics and human rights

• Prior to 2011, there was no global standard for preventing and

addressing the risk of adverse human rights impacts related to
business activity.
• However, more and more companies are expected to be
accountable for human rights violations.
• Many multinationals voluntarily adopt codes of conduct, some
referring to the UDHR, which create expectations among
stakeholders.

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Examples of human rights violations

Historic abuses Numerous companies profited from the slave trade, supplyed the Nazi Germany, the
apartheid government in South Africa and Latin American military governments with
products to perpetrate abuses.
Freedom of Yahoo! China has handed over private user data on dissidents to the Chinese
expression government; the government has imprisoned the dissidents.
Discrimination Wal-Mart has been accused of systematically discriminating over 90,000 of its employees
in the United States.
Workers’ rights Foreign companies operating in Colombia have been sued for allegedly paying
paramilitaries who intimidated and killed union leaders.
Torture Security companies hired by international diamond companies in Cuango, Angola, were
allegedly responsible for beatings, machete attacks, sexual abuse, torture and killings.
The victims were artisanal miners.

You can consult the list of cases on companies accused of violating humans rights here https://www.business-
humanrights.org/en/companies !
Sustainability initiatives
UN GLOBAL CONTACT: a United Nations initiative to encourage businesses
worldwide to adopt sustainable and socially responsible policies, and to report on
their implementation. The UN Global Compact is a principle-based framework for
businesses, stating ten principles in the areas of human rights, labour, the
environment and anti-corruption. Companies are brought together with UN
agencies, labour groups and civil society. (https://www.unglobalcompact.org/)

GRI - GLOBAL REPORTING INITIATIVE: is an independent institution whose mission

is to develop and disseminate globally applicable sustainability reporting
guidelines (https://www.globalreporting.org)

SOCIAL BALANCHE SHEET: it is a document able to furnish the diverse stakeholders

with information on the social effects derived from the company’s business
choices.
Organizational Ethics in a Global Environment (1)

 Organizations operating globally often face rather complicated

ethical challenges due to the cultural and market factors they
are confronted with.
 The global supply chain, for example, represents an ongoing
source of challenges for managers.
 Managers struggle to clearly translate ideas to develop a solid
corporate culture on ethical issues within a complex global
environment, as employees from different countries have
different attitudes and beliefs.

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Organizational Ethics in a Global Environment (2)

There is a tension between two ethical

perspectives:
 Ethical Universalism: some things are
inherently bad and others are inherently
good.
 Cultural relativism: good and evil exist
only as defined in particular cultural
contexts.

The ethics of human rights: intrinsic value of every human

being.
Structure and formal systems for sustainability

The effective implementation of a sustainability or corporate social

responsibility program largely depends on 3 aspects:

A verification system that includes

metrics and rewards:
In the absence of measurable objectives and
precise responsibilities, sustainability efforts risk
being in vain.

Employee involvement:
Involvement of external stakeholders: involving all employees in a sustainability initiative is a better
Communication with stakeholders is about both strategy than assigning responsibility to a specific and separate
listening and dialogue . unit.

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Thank you!
Questions? Comments?
Sources (1)

 BBC News (2021). Frances Haugen: Facebook whistleblower reveals

identity. https://www.bbc.com/news/technology-58784615
 Daft, Richard L. (2021). Business organization. Seventh edition. Chapter 7.
Maggioli Editore.
 Freeman, RE (1984) Corporate Views of the Public Interest. Academy of
Management Review Vol. 9, No. 2
https://doi.org/10.5465/amr.1984.4277733
 Kluckhohn, C. (1962). Culture and behavior . Free Press Glencoe.
 The sun 24 hours. (2013) Datagate, this is how the new global espionage
works. https://st.ilsole24ore.com/art/2013/2013-10-23/all-quello-quello-
quello-quello-quello-quello-quello-quello-quello-quello-datagate--che-cos-
e-nsa-221854.shtml?uuid=ABY8FuY #navigation
Sources (2)

 Milton, F. (1962). Capitalism and freedom. University of Chicago, 634.

 Sandel, MJ (2012). What money can't buy: the moral limits of markets .
Macmillan.
 Solomon, R. (2002). Morality, the basic Rules. Perspectives in Business
Ethics, 2th Edition . Ed .: Laura P. Hartman, 150-152
 UN (2011) Guiding Principles on Business and Human Rights. Available
here:
https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr
_en.pdf
 Wallace, G., & Walker, ADM (Eds.). (1969). The definition of morality.
Routledge.
Sources (3)

oAn interesting documentary for you:

https://www.youtube.com/watch?v=OaGp5_Sfbss
oAn interesting video for you :
https://www.youtube.com/watch?v=Tb6QX9Yy1GM
oAn interesting website for you : https://www.business-
humanrights.org/en/companies