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Business Ethics and Social Responsibility

Financial Securities

IDC 4U1

McConnell

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Business Ethics and Social Responsibility

Behavior of business and the treatment of stakeholders Code of Ethics:

to define accepted/acceptable behaviors; to promote high standards of practice; to provide a benchmark for members to use for self

evaluation; to establish a framework for professional behavior and

responsibilities; as a vehicle for occupational identity;

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Business Ethics and Social Responsibility

International Companies often face a greater ethical dilemma because they operate in numerous countries where values and standards differ

Example: Oil Companies What is Legal vs. What is Ethical

Example: Nestle was one of the biggest purchasers of cocoa from Ivory Coast, a country in West Africa. UNICEF studies and International Labor Organization (2002) revealed that the workers on these plantation lived and worked in poor conditions. They were paid minimal wages and exploited by the land-owners. Nestle purchased cocoa from these farms despite its awareness of the conditions of the laborers, thus making it a party to their exploitation.

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International Business Ethics: Tough choices an ethical dilemma arises when two or more

“right” courses of action conflict making the right choice usually means choosing

what is right or acceptable, both according to a code and according to values that are shared with the parties in conflict

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International Business Ethics: Tough choices… cont’d.

Canadian companies that conduct business in other countries often discover that the laws, values, and ethical standards of Canada are not the same in the foreign location…Canadian values may not be generally accepted

The ethical dilemma can effect the companies ability to compete

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STAKEHOLDERS

a person, group, organization, or system who affects or can be affected by an organization's actions

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CORPORATE SOCIAL RESPONSIBILITY (CSR) Meeting the needs and expectations of a

companies’ stakeholders While CSR does not have a universal definition,

many see it as the private sector’s way of integrating the economic, social, and environmental imperatives of their activities.

CSR also frequently involves creating innovative and proactive solutions to societal and environmental challenges, as well as collaborating with both internal and external stakeholders to improve CSR performance.

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Factors Influencing One’s Ethics

Business ethics does not equal personal ethics; however, your personal ethics influences your business choices.

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Ethical Frameworks:RELATIVISM

Relativism is the position that all points of view are equally valid and the individual determines what is true and relative for them. Relativism theorizes that truth is different for different people, not simply that different people believe different things to be true. While there are relativists in science and mathematics, ethical relativism is the most common variety of relativism.

Almost everyone has heard a relativist slogan: What’s right for you may not be what’s right for me. What’s right for my culture won’t necessarily be what’s right

for your culture. No moral principles are true for all people at all times and in

all places.

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Relativism Cont’d…

Ethical relativism is the theory that holds that morality is relative to the norms of one's culture. That is, whether an action is right or wrong depends on the moral norms of the society in which it is practiced. The same action may be morally right in one society but be morally wrong in another.

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Ethical Frameworks:UTILITARIANISM

“greatest good for the greatest number” The doctrine that actions are right if they are

useful or for the benefit of a majority. Process:

must be alternatives determine cost / benefits of each alternative to the

involved stakeholders select the alternative that produces the greatest

good for the greatest number of individuals

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Utilitarianism Example

Nestle launched bottled water, called “Pure Life” in some Asian countries like Pakistan and India (in 1998 and 2001 respectively). Nestle introduced bottled water, which provided safe clean water but priced it so high that it was unaffordable for the lower income groups. It turned water into a luxury by pricing it around $ 0.4 (in Pakistan) for a one liter bottle.

According to utilitarianism, ethical action is evaluated by looking at its consequences, weighing the good effects against the bad effects on all the people affect by it (Shaw & Barry, 2004). Most developing countries lacked basic drinking water facilities. A very high water price was charged by Nestle limiting a number of people to buy it. Nestlé’s action produces the worse for the greatest number of South Asian because people could not afford for water which is basic human needs and is sporadic and contaminated in south Asia countries.

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Ethical Frameworks:KANTS CATEGORICAL IMPERATIVE

“only do something that would be OK if everyone did the same action” Universality: if everyone did it would it be OK Reversibility: if the situation were reversed would

you be willing to accept it ? The Golden Rule: treat everyone with respect

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Ethical Frameworks:MORAL RIGHTS

actions morally right or wrong if it respects the rights of individuals affected by those actions

moral rights are not granted by society or necessarily in law but exist merely because you are a human being - entitlement

imply corresponding duties

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Ethical Frameworks:JUSTICE OR FAIRNESS

equitable distribution of the benefits and burdens imposed by an action or policy

“similar individuals should be given similar benefits and suffer similar burdens Criteria: contribution, effort, needs, merit, equality

very difficult to maintain in business

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Corporate Governance

set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled

also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

An important theme of corporate governance is to ensure the accountability of certain individuals in an organization

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Corporate Governance Cont’d

There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom).

The Enron scandal was a financial scandal involving Enron Corporation (former NYSE ticker symbol: ENE) and its accounting firm Arthur Andersen, that was revealed in late 2001. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron was on the verge of bankruptcy by November 2001.

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Enron…

As the scandal was revealed, Enron shares dropped from over US$90.00 to less than 50¢. Enron's plunge occurred after revelations that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). The result was that many of Enron's debts and the losses that it suffered were not reported in its financial statements.

In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the five largest accounting firms in the world.