Chapter 6 Ethics and Social Responsibility of Business

1. PowerPoint Slides to AccompanyESSENTIALS OF BUSINESS ANDONLINE COMMERCE LAW1st Editionby Henry R. Cheeseman Chapter 6 Ethics and Social Responsibility of Business Slides developed by Les Wiletzky

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

3. Ethics • Ethics – 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

4. Law and Ethics Law Ethics

5. The Caux Round Table Principles for International Business (1 of 2) • Principle 1The Responsibilities of Business Beyond Shareholders Toward Shareholders • Principle 2The Economic and Social Impact of Business: Toward Innovation, Justice, and World Community • Principle 3Business Behavior: Beyond the Letter of Law Toward a Spirit of Trust

6. The Caux Round Table Principles for International Business (2 of 2) • Principle 4Respect for Rules • Principle 5Support for Multilateral Trade • Principle 6Respect for the Environment • Principle 7Avoidance of Illicit Operations

7. Moral Theories and Business Ethics:Ethical Fundamentalism • Ethical 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

8. 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 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

9. Moral Theories and Business Ethics: Kantian Ethics (Duty Ethics) • A moral theory that says people owe moral duties that are based on universal 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.”

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

11. Moral Theories and Business Ethics:Rawls’s Social Justice Theory (2 of 3) • Rawls’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”would permit the fairest possible principles to be selected

12. Moral Theories and Business Ethics:Rawls’s Social Justice Theory (3 of 3) • There are two major criticisms of this theory: • Establishing the blind “original position” for choosing moral principles is impossible in the real world • Many persons in society would choose not to maximize the benefit to the least advantaged persons in society

13. Moral Theories and Business Ethics:Ethical Relativism (1 of 2) • A moral theory that holds that individuals must decide what is ethical based on their own feelings 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

14. 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

15. Theories of Ethics – Summary (1 of 2)

16. Theories of Ethics – Summary (2 of 2)

17. 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

18. 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

19. 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 responsibility for their actions

20. 2. Moral Minimum 1. Maximizing Profits 4. Corporate Citizenship 3. Stakeholder Interest Theories of the Social Responsibility of Business

21. 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

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

23. 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

24. A theory of social responsibility that says a corporation must consider the effects its actions have on persons other than its stockholders 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 Stakeholder Interest

25. 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

26. 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

27. Theories of Social Responsibility – Summary

28. The Corporate Social Audit (1 of 2) • Corporate audits should be extended to include the moral health of the corporation • Corporations that conduct social audits will be more apt to prevent unethical and illegal conduct by managers, employees, and agents

29. 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 The Corporate Social Audit (2 of 2)

30. 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

31. 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