Contemporary Consumer & Business Ethics Milan 3 - 6 May, 2010 Dr Neil Connon

1. Contemporary Consumer & Business Ethics Milan 3 - 6 May, 2010 Dr Neil Connon

2. Implications and reactions of business to contemporary ethics Session 3&4 Wednesday 11.00 – 13.30 & 16.00 – 19.00

3. Outline of the lecture • What drives business? • CRS • Boycotts • Environmentalism • Government • Media • Conclusions • Bibliography

4. What drives business? • Consumer Sovereignty • What is produced? • How is it produced? • How is it distributed? • Determined by consumer preferences - expressed by individual choice in the market place (free market)

5. What drives business? Adam Smith • producers will find that their self-interest is served by producing what is socially viable • ..individual.. neither intends to promote the public interest, nor knows how much he is promoting it.. he intends only his own gain, and he is in this...led by an invisible hand to an end which was no part of his intention. • the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer

6. What drives business? Adam Smith • "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."

7. What drives business? Adam Smith • It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will." Smith, A. 1776 The Wealth of Nations

8. What drives business? • Consumers have a free choice to buy or not to buy • consumers choices determine a business’s success • choices are conditioned by • available information • Promotional activities • individual consumers are in a relatively weak bargaining position

9. Key features of a corporation • A corporation is essentially defined in terms of legal status and the ownership of assets • Corporations are typically regarded as ‘artificial persons’ in the eyes of the law • Corporations are notionally ‘owned’ by shareholders, but exist independently of them • Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders

10. Social responsibility • ...responsibility to society

11. Towards a framework for business ethics What is a corporation?

15. Can a corporation have social responsibilities? • Milton Friedman 1970 classic article “The social responsibility of business is to increase its profits” • Vigorously argued against the notion of social responsibilities for corporations based on three main arguments: • Only human beings have a moral responsibility for their actions • It is managers’ responsibility to act solely in the interests of shareholders • Social issues and problems are the proper province of the state rather than corporate managers

16. Can a corporation be morally responsible for its actions? • Evidence to suggest that legal designation of a corporation makes it unable to be anything but self-interested (Bakan 2004) • Long and complex debate but generally support from literature for some degree of responsibility accredited to corporations • Argument based on: • Every organisation has a corporate internal decision structure which directs corporate decisions in line with predetermined goals (French 1979) • All organisations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation – organizational culture (Moore 1999)

18. Why do corporations have social responsibilities? • Business reasons (‘enlightened self-interest’) • Extra and/or more satisfied customers • Employees may be more attracted/committed • Forestall legislation • Long-term investment which benefits corporation • Moral reasons: • Corporations cause social problems • Because they are powerful, corporations should use their power and resources responsibly • All corporate activities have social impacts of one sort or another • Corporations rely on the contribution of a wide set of stakeholders in society rather than just shareholders

19. What is the nature of corporate social responsibilities? Corporate social responsibility encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time (Carroll & Buchholtz 2000:35)

20. Corporate Social Responsibility Desired by society Philanthropic Responsibility Expected by society Ethical Responsibility Required by society Legal Responsibility Required by society Economic Responsibility Carrol 1991

21. CSR in a European context • CSR particularly strong concept in US and only more recently become so influential in Europe • Difference due to explicit CSR is US and implicit CSR in Europe • Could argue that all levels of CSR play a different role in Europe • Economic responsibility • USA strongly focused on responsibility to shareholders • Europe focused on the economic responsibility to employees and local communities as well • Legal responsibility • State accepted as prominent force in enforcing rules of the game rather than as interfering in it • Ethical responsibility • Europeans tend to exhibit greater mistrust of modern corporations than US • Philanthropic responsibility • In Europe mostly been implemented compulsorily via the legal framework rather than via discretionary acts of successful companies (US)

22. CSR and strategy: corporate social responsiveness • Corporate social responsiveness refers to the capacity of a corporation to respond to social pressures (Frederick 1994) • 4 ‘philosophies’ or strategies of social responsiveness (Carroll 1979) • Reaction • Defence • Accommodation • Proaction

23. Outcomes of CSR: corporate social performance • Outcomes delineated in three concrete areas: • Social policies • Social programmes • Social impacts

24. Stakeholder theory of the firm • Theory developed by Edward Freeman (1984) • A stakeholder in an organization is…any group or individual who can affect, or is affected by, the achievement of the organization’s objectives (Freeman 1984:46) • More precise definition of ‘affects’ and ‘affected by’ (Evan and Freeman 1993) • Principle of corporate rights - the corporation has the obligation not to violate the rights of others • Principle of corporate effect – companies are responsible for the effects of their actions on others

25. Traditional Management Model Shareholders Customers Firm Suppliers Employees

26. Stakeholder Model Government Shareholders Competitors Firm Customers Suppliers Civil Society Employees

27. Customer stakeholder 1 Competitors Government Customer stakeholder 3 Customers Shareholders Firm Employee stakeholder 1 Suppliers Employees Civil society Employee stakeholder 2 Supplier stakeholder 1 Civil society stakeholder 1 Civil society stakeholder 2 Stakeholder theory of the firm:a network model

28. Why stakeholders matter • Milton Friedman – businesses should only be run in the interests of their owners • Freeman - others have a legitimate claim on the corporation • Legal perspective • ‘Stake’ in corporation already protected legally in some way (e.g. legally binding contracts) • Economic perspective • Externalities – outside contractual relationships • Agency problem – short term interests of ‘owners’ vs. long term interests of managers, employees, customers etc.

29. A new role for management • According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management. • Rather than simply being agents of shareholders, management has to take into account the rights and interests of all legitimate stakeholders: • Stakeholder democracy • Corporate governance

30. Stakeholder thinking in a European context • One could argue that although the terminologyof stakeholder theory is relatively new in Europe, the general principles have actually been practised for some time: • German supervisory board • ‘Covenant Approach’ in environmental regulation in the Netherlands

31. Corporate accountability • Corporate accountability refers to whether a corporation is answerable in some way for the consequences of its actions • Firms have begun to take on the role of ‘political’ actors – taken up many of the functions previously undertaken by government because: • Governmental failure • Increasing power and influence of corporations

32. The problem of democratic accountability • Who controls corporations? • To whom are corporations accountable? • Key to corporate accountability is transparency • Transparency is the degree to which corporate decisions, policies, activities and impacts are acknowledged and made visible to relevant stakeholders

33. Defining corporate citizenship: three perspectives • A limited view of CC – this essentially equates CC with corporate philanthropy • An equivalent view of CC – this essentially equates CC with CSR • An extended view of CC – this acknowledges the extended political role of the corporation in society

34. Commitments to corporate citizenship

35. Three views of corporate citizenship

36. See handout 6 – Business and Ethics

37. Boycotts - history • coined in 1880 by Irish Home Rule leader Charles Stewart Parnell - describes campaign waged against Captain Charles Cunningham Boycott by Irish neighbours • strategy quickly became standard tactic used in struggle against English landlords whose property titles were the result of conquest and sustained by legal privilege • 1879, Parnell and Michael Davitt founded Irish Land League in order to achieve what they called the three "Fs": fair rent, free sale, and fixity of tenure • League evolved into widespread and successful peasant rebellion and the first peaceful mass uprising in Irish history

38. Boycotts - history • campaign against Boycott was League's most notable early victory • was much-hated overseer for Lord Erne, an absentee landlord in County Mayo • 1880, Boycott refused to lower rents for tenants, an audacious scheme was hatched -servants no longer worked in his house, stores sold him nothing, no mail was delivered, and labourers refused to bring in the harvest • Boycott imported politically friendly (Protestant) labourers from Ulster but the expense proved disastrous • humiliated, he was forced to leave Ireland, the campaign's success galvanised Ireland - landlords who evicted tenants found that no other family would move into the vacated home

39. Boycotts - history • ahimsa...is not merely a negative state of harmlessness but it is a positive state of love even to the evil-doer. But it does not mean helping the evil-doer to continue the wrong or tolerating it by passive acquiescence. On the contrary, love, the active state of ahimsa, requires you to resist the wrong-doer by disassociating yourself from him even though it might offend him or injure him physically. Mahatma K Gandhi

40. Boycotts NVDA - non-violent direct action • tends to be the last resort for a pressure group • direct action likely to increase as more groups find their demands not being met • more companies will become involved as targets or allies • may be symbolic to gain public attention N Craig Smith 1990 Morality and the Market

41. Boycotts • specific example of how groups can get their message across • is organised activity in which consumers avoid purchasing products or services from a company whose policies or practices are seen as unfair or unjust • can be directly against a company’s activities rather than a product itself • may involve attempts to openly disseminate information about offensive policies • boycotts have -ve financial ramifications for the companies being targeted

42. Boycotts • consumers can engage in several forms of consumer resistance • pressure groups are likely to be more influential than individuals • some groups engage in resistance by informing the public about marketing practices regarded as socially inappropriate • groups have at their disposal a variety of different methods to put their message across

43. Boycotts Wilson’s 6 guidelines for direct action • if possible it should be relevant to the injustice so that a clear message emerges from the action • it should have imagination and humour • it should enlist the sympathy of people, not alienate them • it should be non-violent • it should be seen to be an expression of genuine injustice, and not the first but rather last resort • wherever possible it should be within the spirit of the law Des Wilson 1984 Pressure: the a-z of campaigning in Britain

44. Boycotts • A model for the process which results in pressure group influenced ethical purchasing behaviour

45. Boycotts • 1. Firm’s marketing system stable: firm (F1) is matching its resources with the wants of its customers; promotional pressure group (P) is concerned about issue (X) • 2. Pressure group awareness of firm’s failings: P becomes aware of F1’s undesirable (as judged by the pressure group) impact on X • 3. Pressure group response: P approaches F1, other organisations (media, governments etc) and the customer to seek an end to the impact of F1 on X

46. Boycotts • 4. Firm’s marketing system becomes unstable: the firm’s customers become aware of the impact of F1 on X. This threatens the exchange process because X becomes a part of the organisation’s offering to the customer through negative product augmentation • 5. Ethical purchase behaviour: some F1 customers, spontaneously or in response to a call for a boycott by P, take their custom to another firm (F2). F2, without the legitimacy shortcomings of impact on X, better matches its resources with those customers’ wants

47. Boycotts Gauging the success of a boycott • has the offending policy been changed? • will business be more cautious and responsible in their future activities? • will businesses in similar areas, but that remain untargetted, also change their behaviour?

48. See handout 7 – Boycotts

49. Boycotts (Innes, 2006) • Food retailers limited GM content due to fear of boycott by Greenpeace and others (Koenig, 2000) • Animal rights reforms by McDonalds and other food retailers were preceded by short and virulent boycott efforts by the People for the Ethical Treatment of Animals (PETA) (Zwerdling, 2002). • Boycotts are a pervasive phenomenon in contemporary society • From 1988 and 1995 over 200 firms and over a thousand products were actually subject to organised boycotts in the US

50. Boycotts • http://www.greenpeace.org.uk/ • Greenpeace is an independent, campaigning organisation • it uses non-violent, creative and confrontation action to expose global environmental problems • It aims to force solutions which are essential to a green and peaceful future