GEN502-BUSINESS ETHICS/Session 6-7/M-3/2019-2020/2-1@Online 25 February 2020

Framing Business Ethics

 ‘triple bottom line’ of sustainability

 Moral, Ethics, and Law
 Corporations, CSR
 Stakeholder theory
 Corporate citizenship

Aravind Yelery ( 葉文 ), PhD

[email protected]
#609
 Structure

PART I – Backgrounder
PART II – Distinction between Moral, Ethics and Law
PART III – Essential New conceptual frame: Ethics to Navigate
Sustainability
PART IV – Actors in ensuring Ethical approaches to business -
Corporations
PART V – Corporate Social Responsibility
PART VI – Stakeholder theory of the Firm
PART VII – Corporate Citizenship

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 PART I

Backgrounder

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 In Class one, we defined the subject of Business Ethics as the study of business
situations, activities, and decisions where issues of right and wrong are
addressed.  

» What is Business Ethics? » Why Business Ethics is important? » An Institutional

History and timeline of the trend » Business Ethics in different organisational
contexts » Globalisation: A key context for business ethics? » International
variety in approaches to business ethics

Key concepts
 Business Ethics
 Globalization

Skills
 Defining Business Ethics
 Comparative analysis of business ethics

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 In Class one, we defined the subject of Business Ethics as the study of business
situations, activities, and decisions where issues of right and wrong are
addressed.  
-------------
Isn’t?

In order to address issues of right and wrong, the crucial starting point for
businesses is the question of whether companies are actors that have to make
decisions beyond simply producing goods and services on a profitable basis.

After all, if companies provide us with great products that we want to buy,
employ workers to produce them, and pay taxes to government, aren’t they
already providing a sufficient contribution to society?

It is the definition and justification of these potentially wider responsibilities that

is the subject of this class (2)

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 PART II

Distinction between Moral, Ethics and Law

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 Morals <> Ethics <> Laws  

Although the words ‘ethics’ and ‘morals’ are often used almost interchangeably,

> MORALS
Morals are one’s personal beliefs about right and wrong

> ETHICS
 Ethics describes standards or codes of behaviour expected of an individual by a
group to which an individual belongs.
 Teacher’s code of Ethics; Doctor’s Code of Ethics; Engineer’s code of Ethics;
Psychologist’s code of Ethics; Advertising ethics
 Lawyer’s code of Ethics - the ethics of the law profession demand that defence
attorneys defend an accused client to the best of their ability, even if they know
the client is guilty

> LAWS
 Laws is a system of ruled that tell us what we can and cannot do.
 Laws are enforced by a set of institutions. Legal acts are acts that conform to the
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 Morals <> Ethics 

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 Law <> Ethics 

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 PART III

Essential New conceptual frame: Ethics to

Navigate Sustainability

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 Essential New conceptual frame to assess business as well as Industrial and social development  

> At the same time that the new challenges of globalization have emerged,
considerable interest has also been directed towards the development of new
ways of addressing the diverse impacts of business in society.

> Faced with such problems (and many more besides), it has been widely suggested
that the goals and consequences of business require radical re-thinking.

> Following the Rio Earth Summit of 1992, one concept in particular appears to
have been widely promoted (though not unilaterally accepted) as the essential new
conceptual frame for assessing not only business activities specifically, but
industrial and social development more generally.

That concept is SUSTAINABILITY

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 SUSTAINABILITY: A KEY GOAL FOR BUSINESS ETHICS

Sustainability can be regarded as comprising

three components— environmental, economic,
and social

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 The Triple Bottom Line

> In 1994, John Elkington,

co-founder of the business
consultancy SustainAbility
introduced the term “triple
bottom line.” 

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 The Triple Bottom Line

> The Traditional Bottom Line – Share value/profit

The traditional bottom line is concerned with the effect of a company’s activities on
share value. It does this by costing all company activity and calculating whether the
company is making a financial profit or a loss.

> The “People” Bottom Line - Community

This is sometimes called the social equity or human capital bottom line and is
concerned with a company’s stakeholders other than shareholders. They include
employees contractors, customers suppliers, and the wider community in which the
business operates. This bottom line is interested in the welfare of these
stakeholders. 

> The Environment Bottom Line - Environment

This is also called the planet bottom line or natural capital and is concerned with the
size of a company’s ecological footprint and how to keep it as small as possible.  

> The Future-Impact Bottom Line - SUSTAINABILITY

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 The Connecting dots – Ethics and the TBL

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 In 2015 all UN world leaders adopted the Sustainable Development Goals (SDGs)
They outline what each country must do to create a fairer, more sustainable future for everyone by 2030. 

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 PART IV

Actors in ensuring Ethical approaches to business

What is a Corporation?

Fundamental nature of modern corporations and the question of

whether corporations can have a moral responsibility in the same
way as individual people do

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GEN502-BUSINESS ETHICS/Session 6-7/M-3/2019-2020/2-18@Online
 > What?
Corporations are “limited liability companies” created by “incorporators” and
owned by investors called “stockholders” or “shareholders” who have certain
rights and responsibilities. 

> Prominence
The corporation is by far the dominant form of business entity in the modern
global economy. Corporations are an incredibly powerful force and have a huge
influence in politics and the lives of millions of employees. 

> Corporations are the actors in ensuring ethical approaches to business

> Although not all businesses (such as sole traders) are corporations, and many
corporations (such as charities and universities) are not-for-profit businesses, we
shall be primarily concentrating on business in the corporate form.

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 Ethics and Corporations – justifications for not connecting Corporations with ethical behaviour

> Corporations were originally considered to be morally justified because they were
created to advance public interests. However, that’s no longer the case for a few
observers. 

> An idea that corporations no longer need to serve the public good and can just try
to make a profit was caused (in part) due to the arguments of Adam Smith and
Alexander Hamilton, who concluded that corporations shouldn’t be required to serve
the public good for at least two reasons:

 One, they thought that the “invisible hand” of a free market would assure us that
corporations would serve the public interest without doing so intentionally. Due to
the invisible hand, corporations offer the best goods and services at the lowest
prices to remain competitive and profitable. Corporations are often very good at
being productive, and the existence of corporations can lead to greater prosperity.
 Two, they thought that people should have the right to create corporations due to
a “right of association” 

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 Ethics and Corporations – Objections and Pressure

> It’s not obvious that corporations are morally justified. There are objections to
corporations’ accountabilities and ethical blunders:
First, corporations are a violation of the
free market. 

Second, the idea of a business doing a

great deal of damage and no one being
liable to pay for the entire amount of
damage sounds like a violation of a
person’s actual rights and responsibilities.

Third, giving investors limited liability and protecting ignorant investors from
criminal charges encourages people to be irresponsible. It encourages investors to
be ignorant because it validates claims that ignorance can excuse their involvement
in a crime.
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 Ethics and Corporations – Objections and Pressure

Fourth, corporations don’t seem conducive to the responsibility of the employees. Managers
and executives in particular can be encouraged to make a profit at the expense of moral and
legal considerations. These managers and executives can be fired for not making enough
profit and it can be that the only managers or executives who can keep their jobs are ones
who are willing to break the law.

Fifth, it’s not obvious that the “invisible hand” has worked out so well. Corporations haven’t
always acted in the public interest. BP decided to risk the environment to rake in the dough
and lead to a horrific oil spill that devastated our ocean waters, several banking corporations
were involved in fraud that lead to the financial crisis, and Goldman Sachs has been involved
in several scandals over the years.

Sixth, consumers have not done a good job at punishing corporations for their immoral
actions. BP and banking corporations involved in immoral acts are still highly profitable. The
invisible hand argument assumes that consumers act in their rational best interest, but they
often don’t.

Seventh, we don’t really have a free market, in part because corporations are allowed to
lobby the
GEN502-BUSINESS government
ETHICS/Session and give donations to politicians in the hope for favourable legislation
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 Institutionalizing ethics within Corporations

We need to know how corporations can best live up to their moral responsibilities.

Even if corporations don’t have a duty to help people, they still have a duty to obey
the law and encourage trust with the public.

It is plausible to think that one way this can be done is by improving the corporate
culture and make sure employees are taking morality seriously. At least four steps
can be taken:

1. Corporations should admit that they have moral responsibilities and make their
moral commitments visible.
2. Corporations should encourage their employees to take moral responsibilities
seriously. Employees can be rewarded for being ethical rather than punished.
There should be a way for employees to voice moral concerns or be whistle-
blowers without fear of retaliation.
3. Corporations should seek rather than try to avoid criticism.
4. Corporations need to respect the individuality of people and the diversity of
groups.
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 PART V

Corporate Social Responsibility

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 The Ethics of Corporate Social Responsibility

> The World Bank defines CSR as “the commitment of businesses to behave ethically
and to contribute to sustainable economic development by working with all relevant
stakeholders to improve their lives in ways that are good for business, the
sustainable development agenda, and society at large”.

> An increasing number of businesses are attempting to achieve ethical business

standards, as well as display more transparency through reports on their
achievements.

> More than a third of large companies have voluntarily requested external
certifications for meeting social or environmental standards, and more than half of
Fortune Global 250 firms now provide regular public statements exclusively
discussing CSR.

> Professionally managed investments are also joining the effort with nearly
11% now designated as socially responsible. (Markus Kitzmueller and Jay Shimshack
2012)

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 Strategies of CSR

> The way companies prioritize different levels of CSR depends on their overall
strategy.

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 Case – BNP Paribas

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 CSR in application (HBR Survey)

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 Corporate Social Responsibility » Corporate Social Performance » ?

> Whilst the outcomes of CSR in the form of Corporate Social Performance is an
important consideration, the actual measurement of social performance remains a
complex task.

> One important implications of the discussion on corporate social performance is

what we have been witnessing a rise in the number and prominence of ranking and
awards then measure and benchmark responsible corporate behaviour and this has
led to a highly competitive environment for companies who see value in positioning
themselves as good CSR performers. 

> A key element in this is to define not only what the corporation is responsible for,
but who it is responsible to. And this is the task of stakeholder theory.

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 PART VI

Stakeholder theory of the Firm

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 Stakeholder Theory

> Unlike the CSR approach, which strongly focuses on the corporation and its
responsibilities, the stakeholder approach starts by looking at various groups to
which the corporation has a responsibility.

CSR – Corporation <> responsibilities

Stakeholder theory – Corporation <various group> responsibilities

> The main starting point is the claim that corporations are not simply managed in
the interests of their shareholders alone, but that there is a whole range of groups,
or stakeholders, that have a legitimate interest in the corporation as well.

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 PART VII

Corporate Citizenship

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 > The debt crisis of 2008, corporate scandals and environmental disasters related to
business activities have emphasised the importance of corporate social responsibility
(CSR) as a means to encourage good corporate citizenship.

> Good corporate citizenship assumes that business has a responsibility in society.
This means that business will not harm society or the environment and assist in
transforming society.

> Corporate citizenship refers to a company’s responsibilities toward society. The goal
is to produce higher standards of living and quality of life for the communities that
surround them and still maintain profitability for stakeholders.

> This can be done by business by means of using their wealth and expertise to
improve the lives and circumstances of people and by addressing injustices like
socio-economic inequality. Corporate citizenship affirms the complex nature of corporate
responsibility that encompasses a wide range of stakeholders in the local and global context
e.g. Stakeholder
GEN502-BUSINESS ETHICS/Sessiontheory (Freeman 1984).
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 Q&A

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