Corporate Social Responsibility & Business Ethics (Ch. 2) - BUS 346
Josephson's core values analysis and decision process
- Michael Josephson believes that a current set of *core values* has been identified and that the values can be meaningfully applied to a variety of personal and corporate decisions - core values = values that almost everyone agrees are important to them
ethical leadership is top-down
- people at the top tend to set the target, the climate, the beliefs, and the expectations that fuel behavior
three key points of ethics
1. although morals and ethics are not precisely measurable, people generally have similar reactions about what actions or conduct can rightly be called ethical or moral 2. as humans, we need and value ethical people and want to be around them 3. saying that someone or some organization is law-adding does not mean the same as saying a person or company is ethical
what are the two requirements for a rule of action to be universal?
1. consistency - if you lie, then lying all the time is acceptable 2. reversibility - role reversal - golden rule
what are the stakes of various stakeholders?
1. ownership 2. economic independence 3. social interests
what are Aristotle's 14 virtues?
(1) courage, particularly in battle (2) temperance, or moderation in eating and drinking (3) liberality, or spending money well (4) magnificence, or living well (5) pride, or taking pleasure in accomplishments and stature (6) high-mindedness, or concern with the noble rather than the petty (7) unnamed virtue, which is halfway between ambition and total lack of effort (8) gentleness, or concern for others (9) truthfulness (10) wit, or pleasure in group discussions (11) friendliness, or pleasure in personal conduct (12) modesty, or pleasure in personal conduct (13) righteous indignation, or getting angry at the right things and in the right amounts (14) justice.
respect
- Judge people on their merits, not their appearance; be courteous, polite, appreciative, and accepting of differences; respect others' right to make decisions about their own lives; don't abuse, demean, mistreat anyone; don't use, manipulate, exploit, or take advantage of others.
maximizing profits: Milton Friedman
- maximizing profits stockholders - "the social responsibility of business is to increase its profits" - Milton Friedman - stakeholder theorists widened the range of people/institutions that a corporation should pay moral consideration to...non shareholder interests
Josephson's core values model
- once you recognize that there is a decision that involves ethical judgement, Michael J. would have first have you ask as many questions as are necessary to get a full background on the relevant facts - often helpful to identify most important stakeholder and why - people confront ethical problems, core model works well to: 1. clarify the gains and losses of various stakeholders 2. to provide a fairly reliable guide as to what the most ethical decision would be - sometimes pressure makes it hard because might not get the profits
ethics codes
- put in place (1) in response to federal guidelines & (2) to encourage feedback loops to top management - best ethics code are aspirational, not legalistic or compliance driven -> ex: Johnson and Johnson - Tylenol - only as important as top management is willing to make it -> must be continuously reinforce
corporations and corporate governance
- shareholders (owners) -> directors (elected by owners) -> office (hired by directors) - as owners, shareholders have the ultimate power to replace nonperforming or underperforming directors, which usually results in changes at the c-suite level as well aka officers - agency problem
social justice theory
- social justice worries about "distributive justice" - what is the fair way to distribute goods among a group of people? -> Marx = government; capitalist = not voluntary; Milton Friedman
how do law and ethics differ?
- there are many professional ethics codes, primarily because people realize that law prescribes only a minimum of morality and does not provide purpose or goals that can mean excellent service to customers, clients, or patients - "legal loophole" - law themselves are meant to express some moral view (right vs wrong) -> ex: legal prohibitions against cheating the Medicare program - important policy issues that face society are often resolved through law, but it is important to understand the moral perspectives that underlie public debate -> ex: stem-cell research, medical marijuana, & abortion
rules and duty: deontology
- Immanuel Kant: having a moral intent and following the right rules is a better path ethical conduct than achieving the right results - ethical action arises from doing one's duty and that duties are defined by rational thought - "universalizing" -> inherent *equality of all human beings* - we should be able to universalize any particular law or action to determine whether it is ethical -> ex: lie on resume - your chosen course of action should be a universal one - a course of action that would be good for all persons at all times - *requires we put duty first, act rationally and give moral weight to the inherent equality of all human beings
ethics definition
- the study of morality - "right" or "wrong" - in the context of everyday life, organizational behaviors, and even how society operating and is governed - legal compliance is not the same thing as acting ethically. your rep, individually or corporately, depends on how others regard your actions. goodwill is hard to measure or quantify, but it is real nonetheless and can best be protected by acting ethically
managing the numbers
- there's temptation to lie about those numbers, based on the need to get stock price every higher - example: Sears Auto Center - they overbilled and charged for nonexistent repairs; they had BIG losses
killing the messenger
- those who told on others become unpopular with those whose defalcations they report on and with the managers who don't really want to her the bad news - "killing the messenger" solves the problem -> Enron firing Sherron Watkins
what is ethics?
- what act is "better" in a moral or ethical sense than some other act? - ethics would be morality as applied to any number of subjects - ethics and morality are equivalent - language is significant: if we say that some nations are "evil" and other "corrupt," then we make moral judgements about the quality of actions undertaken by the governments or people of that nation -> ex: North Korea, Enron, WorldCom - good can mean something other than ethical or moral (e.g. stock) OR in ethical/moral sense (e.g. civic virtue and corporate social responsibility)
what is the role of business?
- whether corporations have social responsibilities that are distinct from maximizing shareholder value
basic rights
- include fundamental elements as food, water, shelter, and physical safety
manager's fiduciary duty
- legally prescribed duties are a reflection of the fact that managers are managing other people's money and have a moral duty to act as a responsible agency for owners - directors have same duty towards shareholder
accountability is often weak
- manager is often an agent for himself or herself and will often act more in his or her self-interest than for the corporate interest
public goods
- Goods, such as clean air and clean water, that everyone must share. - laws, court systems, and government goods/services
corporate culture and codes of ethics
- many corporations have distinct cultures/beliefs that are lived and breathed by its members - corporations are a "person"
act vs rule utilitarianism
*act*: - which action among various options will deliver the greatest good to society? *rule*: - what rule or principle will create the greatest good? **can't just provide greatest good to individuals or corporations must be society as a whole
economic/social vs political/civic rights
*economic/social*: - adequate food - work - environment *political/civic*: - right to vote -right to equal protection of the laws - right to due process
positive vs negative rights
*positive*: - right to bear arms - right to vote - right of privacy *negative*: - right to be free from unreasonable searches/seizures - right to be free of cruel or unusual punishments
why should an individual or a business entity be ethical?
- "good ethics is good business".... no scientific criteria of ethical excellence - the market does not respond to unethical behavior (e.g. Sears Auto Center) - Arthur Andersen + Enron - by focusing on pushing the edge of what is legal, by looking for loopholes in the law that would help create short-term financial gain, companies have often learned that in the long-term they're no actually satisfying the market, the shareholders, the suppliers, or the community generally
stakeholder theory general info
- *stakeholders*: employees, suppliers, customers, and community - to emphasize that corporations have obligations that extend beyond the bottom-line aim of maximizing profits - anyone who most would agree is significantly affected (positively/negatively) by the decision of another moral agent - shareholders have limited liability (Delaware and New Jersey) - there is a social contract between governments and corporations: as long as corporations are considered socially useful, they can exist.
Aristotle and virtue theory
- *virtue theory/ethics* emphasizes the value of virtuous qualities rather than formal or useful results - Aristotle saw goal of human existence as the active, rational search for excellence - believe all activity was aimed at some goal or perceived good and that there must be some ranking that we do among those goals or goods - rejected wealth, pleasure, and fame - *happiness*: the active, rational, pursuit of personal excellence, or virtue - corporations are value driven
shareholders and stakeholders
- 2 main views on corporations duties - 1. maximizing profits: Milton Friedman -> maximizing return on investment to owners - manager's fiduciary duty
responsibility
- Be accountable—think about the consequences on yourself and others likely to be affected before you act; be reliable; perform your duties; take responsibility for the consequences of your choices; set a good example and don't make excuses or take credit for other people's work. - Pursue excellence: Do your best, don't quit easily, persevere, be diligent, make all you do worthy of pride. Exercise self-restraint—be disciplined, know the difference between what you have a right to do and what is right to do.
Trustworthiness
- Be honest—tell the truth, the whole truth, and nothing but the truth; be sincere, forthright; don't deceive, mislead, or be tricky with the truth; don't cheat or steal, and don't betray a trust. - Demonstrate integrity—stand up for what you believe, walk the walk as well as talking the talk; be what you seem to be; show commitment and courage. - Be loyal—stand by your family, friends, co-workers, community, and nation; be discreet with information that comes into your hands; don't spread rumors or engage in harmful gossip; don't violate your principles just to win friendship or approval; don't ask a friend to do something that is wrong. Keep promises—keep your word, honor your commitments, and pay your debts; return what you borrow.
what lessons did Sears learn?
- People generally choose short-term gains over potential long-term losses. - People often justify the harm to others as being minimal or "necessary" to achieve the desired sales quota or financial goal. - In working as a group, we often form an "us versus them" mentality. In the Sears case, it is likely that Sears "insiders" looked at customers as "outsiders," effectively treating them (in Kantian terms) as means rather than ends in themselves. In short, outsiders were used for the benefit of insiders. - The long-term losses to Sears are difficult to quantify, while the short-term gains were easy to measure and (at least for a brief while) quite satisfying financially. - Sears' ongoing rip-offs were possible only because individual consumers lacked the relevant information about the service being offered. This lack of information is a market failure, since many consumers were demanding more of Sears Auto Center services than they would have (and at a higher price) if relevant information had been available to them earlier. Sears, like other sellers of goods and services, took advantage of a market system, which, in its ideal form, would not permit such information distortions. - People in the organization probably thought that the actions they took were necessary.
citizenship
- Play by the rules, obey laws; do your share, respect authority, stay informed, vote, protect your neighbors, pay your taxes; be charitable, help your community; protect the environment, conserve resources.
caring
- Show you care about others through kindness, caring, sharing, compassion, and empathy; treat others the way you want to be treated; don't be selfish, mean, cruel, or insensitive to others' feelings.
economic independence
- Stakeholders can be economically dependent without having ownership. Each of these stakeholders relies on the corporation in some way for financial well-being. - Salaried managers - Creditors - Suppliers - Employees - Local communities
ownership
- The value of the organization has a direct impact on the wealth of these stakeholders. - Managers - Directors who own stock - Shareholders
social interests
- These stakeholders are not directly linked to the organization but have an interest in making sure the organization acts in a socially responsible manner. - Communities - Government - Media
social contract theory
- Thomas Hobbs' social contract where people give up certain rights to government in exchange for securing and common benefits -> corporations and society exchange perpetual duration/limited liability the corporation has duties towards society - modern social contract theorists (Thomas Donaldson & Thomas Dufee) observe that various communities, not just nations, make rules for the common good - importance of studying the rules of smaller communities along with the large social contracts made in states and nation-states -> *Constitution is a social contract* - social contract can be changed by participants in a community (dynamic) -> ex: Russian and Kremlin (Soviety Union) - rights that people have in positive law come from whatever social contract exists in the society - communitarian
fairness
- Treat all people fairly, be open-minded; listen; consider opposing viewpoints; be consistent; use only appropriate considerations; don't let personal feelings improperly interfere with decisions; don't take unfair advantage of mistakes; don't take more than your fair share.
stakeholder theory definition
- a corporation's social responsibilities go beyond just staying within the law and go beyond the corporation's shareholders to increase a number of other important stakeholders, those whose lives can be affected by corporate decisions - pay attention to overall effect on community
Conscious capitalism
- a movement to integrate the 2 viewpoints of stakeholders theory and shareholder primary - companies that practice embrace the idea that profit and prosperity can and must go hand in hand with social justice and environmental stewardship -> holistic/systems view: all stakeholders are connected and interdependent - :"conscious business": maximize profits but is focused more on its higher purpose and does not fixate solely in the bottom line - helps realign actions with top-line managers with shareholders -> having a culture of servant leadership is a much better way to see that a company's top management works to ensure interest
utilitarianism
- a prominent perspective on ethics, one that is well aligned with economics and the free-marker outlook that has come to dominate much current thinking about business, management, and economics - Founder: Jeremy Bentham ( + John Stuart Mill) - emphasizes not rules but results - an action(s) is generally deemed good or right if it maximizes happiness or pleasure throughout society - compare good and bad consequences of policies in legislature - right = policy that produces greatest amount of utility (usefulness) - *an action is right if and only if then sum of utilities producing that action is greater than the sum utilities from any other possible act*
where is utilitarianism found?
- cost-benefit analysis in administration, regulatory rules, and calculations - environmental impact studies - majority vote - product comparisons for consumer info - marketing studies - tax laws - strategic planning
communitarian
- emphasizes that rights carry with them corresponding duties; that is, there cannot be a right without a duty - Amitai Etizioni
an ethical decision model
- having a step-by-step process to analyze difficult moral dilemmas is useful. One process is offered here based on the 6 core values
agency problem
- how to get officers and other top management to align their own interest with those of the shareholders - ex: CEO might trade insider info to the detriment of a company's shareholders
ethics hotlines and federal sentencing guidelines (1991)
- idea was for Congress to correct the lenient treatment often given to white-collar, or corporate, criminals - requires judges to consider "aggravating and mitigating" factors in determining sentences and fines - if one breaks it, they can show it's just a bad apple and they're tending to the orchard by: 1. viable active code of ethics 2. a way for employees to report violations of law or the ethical code 3. an ethics ombudsman, or someone who oversees the code
what are some frequent mistakes that people make in applying what they think are utilitarian principles in justifying their chosen course of action?
1. Failing to come up with lots of options that seem reasonable and then choosing the one that has the greatest benefit for the greatest number. Often, a decision maker seizes on one or two alternatives without thinking carefully about other courses of action. If the alternative does more good than harm, the decision maker assumes it's ethically okay. 2. Assuming that the greatest good for you or your company is in fact the greatest good for all—that is, looking at situations subjectively or with your own interests primarily in mind. 3. Underestimating the costs of a certain decision to you or your company. The now-classic Ford Pinto case demonstrates how Ford Motor Company executives drastically underestimated the legal costs of not correcting a feature on their Pinto models that they knew could cause death or injury. General Motors was often taken to task by juries that came to understand that the company would not recall or repair known and dangerous defects because it seemed more profitable not to. In 2010, Toyota learned the same lesson. 4. Underestimating the cost or harm of a certain decision to someone else or some other group of people. 5. Favoring short-term benefits, even though the long-term costs are greater. 6. Assuming that all values can be reduced to money. In comparing the risks to human health or safety against, say, the risks of job or profit losses, cost-benefit analyses will often try to compare apples to oranges and put arbitrary numerical values on human health and safety.
what are the 3 issues with Aristotle's 14 virtues?
1. How do we know what a virtue is these days? 2. How useful is a list of agree-upon virtues anyway? 3. What do virtues have to do with companies?
Josephson's questions in his model?
1. Identify the stakeholders. That is, who are the potential gainers and losers in the various decisions that might be made here? 2. Identify several likely or reasonable decisions that could be made. 3. Consider which stakeholders gain or lose with each decision. 4. Determine which decision satisfies the greatest number of core values. 5. If there is no decision that satisfies the greatest number of core values, try to determine which decision delivers the greatest good to the various stakeholders.
relationship between rights and duties
1. If you have a right of free expression, the government has a duty to respect that right but can put reasonable limits on it. For example, you can legally say whatever you want about the US president, but you can't get away with threatening the president's life. Even if your criticisms are strong and insistent, you have the right (and our government has the duty to protect your right) to speak freely. In Singapore during the 1990s, even indirect criticisms—mere hints—of the political leadership were enough to land you in jail or at least silence you with a libel suit. 2. Rights and duties exist not only between people and their governments but also between individuals. Your right to be free from physical assault is protected by the law in most states, and when someone walks up to you and punches you in the nose, your rights—as set forth in the positive law of your state—have been violated. Thus other people have a duty to respect your rights and to not punch you in the nose. 3. Your right in legal terms is only as good as your society's willingness to provide legal remedies through the courts and political institutions of society.
what 2 propositions about business and ethics?
1. individuals and organizations have reputations 2. the goodwill of an organization is to a great extent based on the actions it takes and on whether the actions are favorably viewed
what are issues in most cost-benefit analyses?
1. put exclusively in terms of money 2. directed to the benefit of the person or organization doing the analysis and not to society
what are ethical perspectives?
1. rights 2. social utility 3. virtue or character 4. social justice - different comes down to incompatible moral perspectives (clash of basic values)
what are the 6 core values in our society?
1. trustworthiness 2. respect 3. responsibility 4. fairness 5. caring 6. citizenship **all are ethical values - a lot of times people are remembered for the last bad thing; for ex, Bill Clinton and Eliot Spitzer
what are the major ethical perspectives?
1. utilitarianism 2. deontology 3. social justice & contract theory 4. virtue theory - throughout history, people have pondered what it means "to do what is right." some of the main answers have come from the differing perspectives of utilitarian thought; duty-based, or deontological thought; social contract; and virtual ethics
