Memorandum

PHI 4301, Business Ethics 1

Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to:

3. Examine the ethical foundations for controversial issues in business. 3.4 Explain why environmental, sustainability, and governance considerations are important in the

selection and compensation of a chief executive officer.

4. Analyze the challenges of business ethics on a global scale. 4.2 Establish quantifiable goals and a process for measurement for an organization.

5. Formulate ethical solutions for real-world situations using ethical theories and concepts.

5.6 Create environmental, sustainability, and governance metrics for an organization.

Required Unit Resources Chapter 9: Business and Environmental Sustainability Chapter 10: Trust in Corporate Governance, Accounting, and Finance

Unit Lesson In our final unit, we cover topics that express fundamental tensions within modern capitalist economies. In business relationships where one party is expected to act in another's best interests, we face an inherent conflict of interest known as the agency problem. The incentives of the capitalist system are also inherently biased toward actions that promote short-term individual preference satisfaction but collectively conflict with the long-term prosperity of our species on Earth. We can call this the sustainability problem. The agency problem and sustainability problem do not necessarily entail that capitalism sows the seeds of its own destruction, as critics might allege; however, they do require the imposition of moral judgement on business decisions in critical contexts. To illustrate the moral implications of the agency problem, consider the issue of insider trading. An executive who is also a shareholder of a publicly traded corporation is about to issue a quarterly earnings report that will fall far short of market expectations. As an agent responsible for the best interests of the company, the executive is expected to project confidence to shareholders and the market in general (Hartman et al., 2024). Dumping or short selling shares for the company would undermine confidence but be personally lucrative to this person as an individual agent. Which agent, morally speaking, ought to prevail is the essence of the agency problem. A similar situation arises with the sustainability problem when we consider individual behavior in the automotive industry. One person’s decision to buy and drive a vehicle that consumes fossil fuels and emits carbon dioxide is, by itself, mostly harmless to the environment. When millions of individuals make the same decision, though, the effects on global temperature in the future are inescapable. The automobile manufacturer faces the sustainability problem when the cost of reducing the emissions from its products poses a high risk to both profit and market share. For the auto company that perceives its choices are either reducing harm to the environment or staying in business, the sustainability problem is something quite real and difficult. Regulatory approaches to the agency problem and the sustainability problem leverage the coercive and incentive powers of government to align individual benefits with the greater good. Our moral commitment to fairness in the market dictates the interests of the corporate agent ought to subsume the interests of the

UNIT VIII STUDY GUIDE

Sustainability and Governance

PHI 4301, Business Ethics 2

UNIT x STUDY GUIDE

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individual agent (Hartman et al., 2024). This commitment is enshrined in the federal government’s Securities and Exchange Commission regulations and criminal statutes against insider trading. Corporate Average Fuel Economy (CAFE) standards established by the federal government apply equally across the automotive industry so that no single manufacturer is uniquely burdened by the need to invest in greater fuel efficiency (Hartman et al., 2024). At the same time, government increases taxes on gas and offers tax rebates on electric vehicles. The free market has also produced innovative approaches to the agency problem and sustainability problem. To ensure a commitment to shareholder value and curtail runaway pay, corporate boards have devised executive compensation packages that link bonus and equity awards to key performance metrics (KPMs). More recently, executive compensation agreements also reference environmental, social, and governance (ESG) metrics in accordance with the integrative model of corporate social responsibility we discussed in Unit IV. You will get to design your own ESG metrics for the Unit VIII Assignment. An even more radical shift is occurring in the transformation of the economy from product-based to service- based. The change is perhaps most evident in the automotive industry, which is in the process of becoming a personal transportation service industry. Instead of buying a vehicle, consumers in urban areas use mobile apps to rent a car (e.g., Zipcar, Car2Go) or a scooter (e.g., Bird, Lime) by the hour or to hail a ride sharing service (e.g., Lyft, Uber). Some futurists say autonomous vehicles will someday obviate the need for anyone to own a car. In any case, service providers will increasingly take responsibility for the entire life cycle of what were once products sold to individual consumers. This will no doubt have an effect on the sustainability problem. The agency and sustainability problems show the importance of engaging in both business ethical theory and ethical business practices. Throughout this class, we have seen how philosophical ideas in business ethics find expression in the real-world, ordinary, and extraordinary, business contexts. As you venture further into the world of business, these ideas can guide you in making confident moral decisions.

Reference Hartman, L. P., DesJardins, J., & MacDonald, C. (2024). Business ethics: Decision making for personal

integrity and social responsibility (6th ed.). McGraw-Hill Education. https://online.vitalsource.com/#/books/9781265810153

Suggested Unit Resources In order to access the following resources, click the links below. The following video explains cryptocurrency and how it works. Blockgeeks. (2018, November 8). What is cryptocurrency? A simple explanation [Video]. cielo24.

https://c24.page/bv8gsvpzmyu8q3hq5wbgyz2px6 A transcript and closed captioning are available once you access the video. The following video analyzes energy use concerns associated with Bitcoin mining. Guardian News. (2021, February 25). Why Bitcoin is so bad for the planet [Video]. cielo24.

https://c24.page/935j9za28aa6pk4gabuq5649w A transcript and closed captioning are available once you access the video.