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Topic2BusinessEthicsCorporateGovernanceCSR.pptxLearning Outcomes
Define business ethics and describe the factors that shape a manager’s ethical decision making.
Describe the principles of good Corporate Governance
Define corporate social responsibility and explain how to evaluate it along economic, legal, ethical, and discretionary criteria.
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Business Ethics
An ‘oxymoron’! – bringing together of two contradictory concepts (Collins 1994)
‘Principles of conduct within organizations that guide decision making and behavior’ (David 2008)
Good business ethics is a prerequisite for good strategic management
‘The study of business situations, activities, and decisions where issues of right and wrong are addressed’ (Crane & Matten 2004)
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Ethical Values, Issues and Choices
Ethical values: shared beliefs about right and wrong, good and bad
Govern the behaviour of a person or a group
Ethical issues: problems or dilemmas which present a conflict of values
Pay a ‘living wage’ or personal financial gain
Ethical choices: decisions about which option to take in response to a dilemma
Difficult decisions, because each option has its own drawbacks
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Misleading advertising
Misleading labeling
Poor product or service safety
Harming the environment
Insider trading
Padding expense accounts
Dumping flawed products on foreign markets
But in many other cases, the law is unclear and all choices have elements of both ‘right’ and ‘wrong’
Some business practices always considered unethical and often illegal
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Business Ethics ...
Free
Choice
Law
Ethics
A personal responsibility?
Legal Standard
Social Standard
Personal Standard
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Ethical Dilemma What would you do?
You are a strategic analyst at a successful hotel enterprise that has been generating substantial excess cash flow.
Your CEO instructed you to analyse the competitive structure of closely related industries to find one the company could enter, using its cash reserve to build up a substantial position.
Your analysis suggests that the highest profit opportunities are to be found in the gambling industry. You realise that it might be possible to add casinos to several of your existing hotels, lowering entry costs into this industry.
However, you personally have strong moral objections to gambling
Should your own personal beliefs influence your
recommendations to the CEO?
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Criteria for Ethical Decision Making
Utilitarian approach – moral behavior produces the greatest good for the greatest number
Individualism approach – acts are moral when they promote the individual’s best long-term interests
Moral rights approach – moral decisions are those that best maintain the rights of those affected, including free consent, life and safety
Justice approach – decisions must be based on standards of equity, fairness, and impartiality; (esp. important in HR management)
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Why is Business Ethics Important?
Companies experience ‘social blowback’ when stakeholders perceive that they have breached their deal with society
Good business ethics is a prerequisite for good strategic management
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The Emergence of Corporate Social Responsibility
Companies have responded to increasing expectations by advocating what is now a common term in business: Corporate Social Responsibility (CSR)
Most large companies now feature CSR reports, managers, departments, and the subject is increasingly promoted as a core area of management - next to marketing & accounting
Crane, Matten & Spence (2008)
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Corporate Social Responsibility (CSR)
Preliminary definitions of CSR
The impact of a company’s actions on society
Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system
Corporate Social Responsibility (CSR)
Business Criticism/ Social Response Cycle
Factors in the Societal Environment
Criticism of Business
Increased concern
for the Social Environment
A Changed
Social Contract
Business Assumption of Corporate Social Responsibility
Social Responsiveness, Social Performance, Corporate Citizenship
A More Satisfied Society
Fewer Factors Leading
to Business Criticism
Increased Expectations Leading
to More Criticism
Corporate Social Responsibility (CSR)
Historical Perspective
Economic model – the invisible hand of the marketplace protected societal interest
Legal model – laws protected societal interests
Corporate Social Responsibility (CSR)
Historical Perspective
Modified the economic model
Philanthropy
Community obligations
Paternalism
Corporate Social Responsibility (CSR)
Historical Perspective
What was the main motivation?
To keep government at arms length
Search the Web
Businesses are interested in CSR and one leading business organization that companies can join is Business for Social Responsibility. To learn more about BSR, visit their web site at:: http://www.bsr.org/
Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR considers the impact of the company’s actions on society (Bauer)
CSR requires decision makers to take actions that protect and improve the welfare of society as a whole along with their own interests (Davis and Blomstrom)
Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR mandates that the corporation has not only economic and legal obligations, but also certain responsibilities to society that extend beyond these obligations (McGuire)
Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR relates primarily to achieving outcomes from organizational decisions concerning specific issues or problems, which by some normative standard have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR (Epstein)
Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition
CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time
Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition
Understanding the Four Components
| Responsibility | Societal Expectation | Examples |
| Economic | Required | Be profitable. Maximize sales, minimize costs, etc. |
| Legal | Required | Obey laws and regulations. |
| Ethical | Expected | Do what is right, fair and just. |
| Discretionary (Philanthropic) | Desired/ Expected | Be a good corporate citizen. |
Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved
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Pyramid of CSR
Philanthropic Responsibilities Be a good corporate citizen.
Ethical Responsibilities Be ethical.
Legal Responsibilities Obey the law.
Economic Responsibilities Be profitable.
Source: Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons (July-August 1981). © 1991 by the Foundation for the School of Business at Indiana University. Used with permission.
Corporate Social Responsibility (CSR)
CSR in Equation Form Is the Sum of:
Economic Responsibilities (Make a profit)
Legal Responsibilities (Obey the law)
Ethical Responsibilities (Be ethical)
Philanthropic Responsibilities (Good corporate citizen)
CSR
Who determines a good business ethics or CSR Agenda?
Government: the law makers?
Business ethics begins where the law ends
The ‘strategists’: CEO, CSO, CFO, managers
Core values, beliefs ‘embedded’ in organization
Business ‘code of ethics’ (Banking, Media, Food Industry)
Board of Directors
Corporate Governance
Duties & Responsibilities
Stakeholders
Consumers/pressure groups/local community/Media
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Who is Responsible for Ethics / CSR? Leadership & Management Issues
CEO / Strategists
Code of business ethics:
Provides basis on which policies can be devised to guide daily behavior and decisions in the workplace
CEO & Management responsible for implementation
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Who else is responsible for Ethics / CSR? Governance Issues
Board of Directors Roles & Responsibilities
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
Is ‘being ethical’ good for business?
Is it possible to be both profitable and responsible?
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Corporate Governance Definitions…
The way in which organizations are directed and controlled
Cadbury (1992)
The process by which corporations are made responsive to the rights and wishes of stakeholders
Demb and Neubauer (1992)
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Corporate Governance
The Growth of Modern Corporations
The ‘Agency Problem’
The agency problem arises because of the separation between ownership of an organization and its control
The agency problem is inherent in the relationship between the providers of capital, referred to as the ‘principal’, and those who employ that capital, referred to as the ‘agent’.
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Corporate Governance (Jensen & Meckling 1976)
The ‘Agency Problem’
Agency problems occur because no contract, however precisely drawn, can possibly take account of every conceivable action that an agent may engage in
How do you ensure that the agent will always act in the best interest of the principal?
‘Agency costs’ occur where there is a divergence between these interests
Hence original purpose of Board of Directors
How are such issues addressed?
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Directors Roles & Responsibilities BusinessWeek’s ‘Principles of Good Governance’
No more than 2 directors are current or former company executives
No directors do business with the company
Each director owns a large equity stake in the company
At least one outside director with extensive experience
Each director attends at least 75% of all meetings
Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises
CEO is not also the chairperson of the board
Shareholders have considerable power and information to choose & replace directors
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Corporate Governance & CSR?
The Purpose of Corporations?
To maximise shareholder value
‘In a free enterprise, private property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible…’
Milton Friedman (1970)
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Corporate Governance & CSR The Debate…
The Purpose of Corporations?
To meet the needs of stakeholders
Stakeholders are individuals or groups that affect or are affected by the achievement of an organization’s objectives
Edward Freeman (1984)
eg., shareholders, customers, suppliers, employees, government, local community, media…
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Ethical Stances of Organizations
Socially obstructive
Prioritising short-term shareholder interests
Avoids highly regulated business locations, lobby to change laws
Socially obligative
Prioritising longer-term shareholder interests
Comply with laws
Socially responsive
Balancing multiple stakeholder obligations
Pay attention to pressure groups, use CSR to build competitive advantage
Socially contributive
Seeking to shape society
Promoting sustainability and locally led economic development
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Evaluating Corporate Responsibility
The Pyramid of CSR
Archie Carroll (1991)
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Organisations and Ethical Choice
Key question…
Should a business prioritise shareholder value or stakeholder needs?
Shareholders own the business
Primarily for financial gain
Stakeholders are affected by the decisions and operational activities of the business
Financial, non-financial and personal benefits
The social contract between business and society
is constantly evolving... (Waddock 2010)
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The CSR Debate moves on…
The early message ‘doing well by doing good’
CSR imposes political functions of govt on corporate executives
CSR has failed to create the good society – expecting too much from business
Close adherence to CSR agenda leads to falling profits
Difficulty in allocating rights responsibilities and enforcing them – who decides?
Stakeholder theory the way forward – CA through building superior relationships.
Good CSR manages the paradox of profitability & responsibility
Jury is still out – you decide!
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