BBB2154 | Business Ethics Prepared by Dr Khairul Anuar

1. BBB2154|Business Ethics Prepared by Dr Khairul Anuar L2 - Corporations, Morality, and CSR

2. Private vs. Public Ownership • To some extent, the rules for privately owned companies are different from the rules for those that are publicly owned. • Publicly traded companies are obliged to reveal a good deal of information about their financial status, so that investors can make informed decisions about buying and selling their stock. • More is legally required of publicly traded companies in order to protect the interest of the shareholders.

3. Small and Medium-Sized Businesses • Although giant corporations tend to dominate business and are the focus of most discussions about business and business ethics, small and medium-sized businesses are the most numerous in all societies and have often been among the most innovative. • Small and medium-sized businesses are frequently treated differently under the law. • The emphasis in most discussions of business ethics is on corporations, and especially on large corporations.

4. Shareholder vs. Stakeholder • Corporations have a special status under corporate law in that they have limited liability. • This means that the owners of stock in the company are only liable for the amount they have invested in the company’s stock. Their personal assets are not at stake. • The classical concept of the corporation presents the corporation as existing primarily to serve the shareholders. According to this view, the interests of the shareholders are paramount and come first over all other interests. • Shareholders, although legally the owners, are very often simply speculators with no real interest in the long-range future of the company. • Although stockholders of a corporation are technically the owners and have rights, including the right to have the company run well, there are other constituents who have a much stronger interest and involvement in the firm, and a much stronger stake in it and in its continuance and success.

5. Shareholder vs. Stakeholder • All those to whom the corporation has any obligations are collectively referred to as stakeholders in the corporation. • A stakeholder analysis of an issue consists of weighing and balancing all of the competing demands on a firm by each of those who have a claim on it, in order to arrive at the firm’s obligation in any particular case. • The stakeholder approach has the strength of forcing us to consider carefully all the obligations involved, for instance, in a plant closing, instead of just looking at the closing from the point of view of profitability, and so from the point of view of the shareholders.

6. Corporate Moral Responsibility • A corporation has the same ethical obligations to its shareholders, employees, customers, suppliers, and the community and the same responsibilities with respect to the environment whether it is conceived on the shareholder or the stakeholder model. • The general obligations of corporations stem from the nature of the corporation, society, and the implicit agreement between the two. • The first is the obligation to “Do no harm.” • The second general obligation is the moral obligation not to undermine the freedom and the values of the system. • The third general obligation is to be fair in the transactions in which it engages. • The fourth general obligation is to live up to the contracts into which one enters freely

7. Corporate Moral Responsibility • Members of the Board. The members of the board are responsible to the shareholders for the selection of honest, effective managers, and especially for the selection of the CEO and of the president of the corporation. They may also be responsible for choosing the executive vice president and other vice presidents. They are morally responsible for the tone of the corporation and for its major policies; they can set a moral tone, or they can condone immoral practices. • Management. Management is responsible to the board. Management is responsible for setting the moral tone of the firm. Unless those at the top insist on ethical conduct, unless they set an example of moral conduct, and unless they punish unethical conduct and reward ethical conduct, the corporation as a whole will tend to function without considering the moral dimensions of its actions.

8. Corporate Moral Responsibility • Management and Workers. Management is also responsible to the workers. Workers, in turn, are responsible for doing the jobs for which they are hired. From a moral point of view, one’s job can never legitimately involve either breaking the law or doing what is unethical, even if one is ordered to do so. But within the guidelines of one’s job description, employees are expected to carry out their jobs as instructed by those above them. • Suppliers and Competitors. Corporations are responsible to their suppliers and competitors for fair treatment. Fairness precludes lying about one’s competitor or the competitor’s products; it precludes stealing trade secrets, sabotage, or other direct intervention in the competitor’s firm. Fairness in dealing with one’s competitor also precludes colluding with competing firms, price fixing, manipulating markets, and in other ways acting to undermine fair competition at the public’s expense.

9. Corporate Moral Responsibility • Corporations and the consumer. The corporation is responsible to the consumer for its products. The goods produced should be reasonably safe. • The corporation and the general public. Finally, the corporation is morally responsible for its actions to the general public or to society in general. In particular, it has the moral obligation not to harm those whom its actions affect. • The first can be called its obligation not to harm the environment that it shares with its neighbors. • The second group of moral obligations to the general public concerns the general safety of those who live in an area affected by a company’s plant. • The third set of responsibilities to the public concerns the location, the opening, and the closing of plants—especially in small communities and one-industry towns.

10. Corporate Social Responsibility • Moral demands stem from the moral law. • The term “corporate social responsibility” became popular in the 1960s. • Moral obligations are sometimes correctly put forth as social obligations because they can and should be demanded by a moral society. • They are morally justifiable both because they implement a moral demand and because society has the right to impose particular demands on corporations as a condition for doing business, providing the demands are in the interest of the common good.

11. Corporate Social Responsibility • There are five primary criticisms of CSR programs. • The first is that CSR is often not only confused with a corporation’s moral responsibility, but it is sometimes equated to it. • Second, social responsibility programs are often self-serving and are used by companies to deflect legitimate moral complaints and criticism. • Third, in many cases the socially responsible action that a company undertakes is one of its own choosing. • Fourth, where laws are absent, exactly what society expects or demands may be difficult to determine. • Fifth, the extent to which corporations are not only national entities but are also international in both reach and organization complicates the application of CSR.

12. Corporate Social Responsibility Moral and Social Audits and Standards • The Triple Bottom Line (profits, people and planet) position is that a corporation can and should be evaluated not only in terms of its financial bottom line, but also in terms of its environmental bottom line and its social/ethical bottom line. • In the first lecture we examined the Myth of Amoral Business. The myth tends to obscure the moral obligations of corporations. The myth should be put to rest. • Corporations have moral obligations, and they can and should be held morally accountable for fulfilling them. If such an audit were required of all large corporations, it would go a long way toward replacing the Myth of Amoral Business with a clear and open approach to corporate moral obligations.

13. Corporate Codes • Although corporate codes cannot be expected to contain a detailed presentation of moral reasoning, they can make reference to general moral principles. • The injunction to employees (found in one corporate code) to act in such a way that they would not be ashamed to have their actions exposed to the public is a step in the right direction. • A code could appropriately and helpfully refer to the principles from which the code flows, to principles of justice and fairness. • It could also refer to these moral principles: objectively weighing the consequences to all those affected by one’s actions, respecting the rights of others, and the like.

14. Advantages of Corporate Codes • The very exercise of creating a corporate code is worthwhile. It compels people in the firm to think about their obligations to each other and the public. • A code can also be used to generate continuing discussion and possible modification of the code. • A code may help to inculcate in new employees at all levels the perspective of responsibility, the need to think in moral terms about their actions, and the importance of developing the virtues appropriate to their positions. • A code can be used as a document to which employees can refer to when asked to do something contrary to it. • A code might be used to reassure both customers and the public of the fact that the firm adheres to moral principles, and to provide them with a touchstone against which they can measure the firm’s actions.

15. The Meaning of CSR • Corporation’s Economic Responsibilities • Producing goods and services • Providing jobs and good wages to the workforce while earning a profit • Seeking out supplies of raw materials • Discovering new resources and technological improvements and develop new products

16. The Business Case for CSR • Arguments for the business case for CSR • CSR contributes to profitability because • The market rewards responsible behavior • The market punishes a company’s failures • CSR can be a source of competitive advantage

17. The Market for Virtue • If CSR is profitable then it’s profit opportunities should be sufficient to • Encourage managers to lead socially responsible companies • However, they must be made aware of the link between CSR and profitability.

18. Program Selection and Design • The guiding principles of strategic CSR are that • There is an interdependence between business and society • As a result there are opportunities for mutual benefit

19. Program Selection and Design • The most successful CSR programs • Make use of a company’s mission and core competencies • Truly strategic CSR identifies opportunities that fit with a company’s strategy.

20. Program Selection and Design • Successful CSR programs incorporate stakeholder engagement or dialogue. • Outside groups can be a resource • In expanding a company’s capabilities • In understanding the needs and outlook of others • Engaging them in the pursuit of mutual benefit

21. Reporting and Accountability • CSR has value • Only if it has the social benefits companies claim and outside groups want • The demand for measurement of social performance has given rise to • social and ethical auditing, accounting, and reporting and triple-bottom-line accounting

22. Corporate Social Responsibility • The obligation companies have to develop and implement courses of action that aid in social issues that impact society • Legal responsibility, fiduciary duty, legitimacy, and charitable contributions

23. Components of CSR • Economic Responsibilities • Based on the underlying foundation of why a firm has been creates, which is to develop economic value • Firm has a responsibility to use the resources available to produce goods and services for society • Examples: maximizing earnings per share, generating a high and consistent level of profitability, establishing and maintaining a strong competitive position, operating the firm at a high efficiency level

24. Components of CSR • Legal Responsibilities • The laws and regulations that all firms are expected to abide by as they perform their daily functions. • Examples: operating consistent with government and legal expectations; displaying complete compliance with all regulations

25. Components of CSR • Ethical Responsibilities • Change over time because they are based on expectations of society • Examples: meeting expectations of both social and ethical norms; ability to adapt to new or evolving ethical and moral norms; being a good corporate citizen

26. Components of CSR • Discretionary Responsibilities • Those responsibilities in which society does not have a clear message to present to businesses as to what their courses of action should be • Left in the hands of managers to make the proper judgment • Examples: giving to charitable organizations; providing drug treatment programs; providing day care centers • These are not considered unethical if they do not participate in these discretionary responsibilities

27. Ten Commandments of Social Responsibility • Thou shalt be proactive in taking action to correct problems before they impact the company • Thou shalt seek input from all impacted stakeholders in any problem that needs to be addressed • Thou shalt use industry standards as a benchmark and voluntarily internally regulate our corporate behavior • Thou shalt admit to the public when mistakes have taken place • Thou shalt be active in supporting community social programs

28. Ten Commandments of Social Responsibility • Thou shalt be active in ensuring environmental sustainability in the actions of the company • Thou shalt be aware of any changes that occur in the corporate social environment • Thou shalt establish and maintain a formal corporate code of conduct • Thou shalt be committed to publicly supporting social causes • Thou shalt be profitable to financially support the company’s social responsibility agenda

29. Benefits from integrating CSR into Operations • Better risk and crisis management • Good relations with stakeholders and interested communities • Increased worker commitment • Increased productivity • Reduced operating costs • Enhanced brand value and reputation • Long term sustainability for the company and society

30. Social Accountability 8000 Certification • Provides a way for companies to ensure that they are offering a humane workplace • Child labor • Forced labor • Health and safety • Freedom of association and right to collective bargaining • Discrimination • Discipline • Working hours • Compensation • Management systems