Business Ethics

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  • Created by: A92
  • Created on: 13-04-14 17:22


Corporate social responsiblitity

CSR refers to a company's sense of responsibility towards the community and environment in which it operates. This can be done in 2 ways..

1) Enlightened self-interest –

CSR makes the firm appeal to certain consumer segments, increases employee retention and attraction, and allows for greater corporate independence from government.

2) Moral argument –

Corporations have a responsibility to solve the problems they cause, and as they are powerful social actors, they should use their power and resources responsibly in society.

Carroll’s model of CSR:

Economic, Legal, Ethical and Philanthropic responsibilities.

These responsbilities are either required, expected or desired by society.

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Stakeholder theory of the firm

Stakeholder theory suggests that when firms make ethical decisions, it needs to look at various groups to which the corporation has a responsibility, as companies have obligations to a variety of stakeholder groups that are affected by its activities.

Legal perspective – Groups other than shareholders that appear to hold a stake in the company.

Economic perspective – Business decisions can affect a range of stakeholders

Three types of stakeholder theory:

Normative theory - Reasons why corporations should take into account stakeholder interests

Descriptive theory - Whether corporations actually do take into account stakeholder interests

Instrumental theory - Is it beneficial for the corporation to take into accont stakeholder interests

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Normative ethical theories:

Utilitarianism -

An action is morally right if it results in the greatest amount of good for the greatest amount of people affected by the action. This theory focuses on the consequences of an action, and weighs the good results against the bad results.

However, this theory has been criticised for being subjective, and also for overlooking the opinions of the minorities.

Kantianism -

Ethical theories are duties to fulfil basic principles, and humans can be regarded as independent moral actors who can make their own rational decisions regarding right and wrong.

- What is right for one person, must be right for anyone else in the same position

- People should be treated as ends and never as means

- Would everyone act in that similar manner when faced with a similar situation (universal law)

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Main influences on ethical decision-making

Descriptive business ethics theories seek to describe how ethical decisions are actually made in business, and what influences the process and outcomes of those decisions. Two forms..

1. Individual influences -

This refer to the unique characteristics of the individual decision-maker, including…

Demographic factors, National and cultural characteristics, Personal integrity.

2. Situational factors –

This suggests that the context influences whether or not an individual will make an ethical decision. These include..

Issue-related factors;  Moral intensity and Moral framing

Context-related factors: Systems of rewards and work roles

National and cultural context - Where the organisation is located can lead to different values

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Business ethics management

This is the direct attempt to formally or informally manage ethical issues or problems through specific policies and practices. These include…

Codes of ethics – Outlines type of conduct desired and expected of employees

Advice channels – Enables employees to report or receive advice regarding ethical dilemmas

Ethical managers – Coordinates and takes responsibility for managing ethics in firms

Ethical training – This may be offered internally or externally to address common ethical issues

Auditing – Communicates the firms performance on a range of issues of interest to stakeholders

In order for business ethics management to be effective, it must take into account both the internal and external dimensions of an organisation.

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Social accounting

This refers to the voluntary process concerned with assessing and communicating organisational activities and impacts on social, ethical, and environmental issues related to stakeholders.

Organisations engage in social accounting for both practical and moral reasons…

Internal and external pressures – From competitors, governments and the media

Risk identification – It may help organisations identify risks and other potential problems

New communication channel – Potentially enhances its reputation amongst stakeholders

Enhanced accountability and transparency – Outlines an organisations social role and impacts

Corporations should also allow learning and change, to reflect changing stakeholder expectations. In addition, external verification can increase the faith and confidence in a social account.

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Employee rights & Duties

Employee rights –

Not to be discriminated within the workplace

Right to privacy – Including, physical, social and psychological privacy

Safe working conditions

Right to participation and association – Should be allowed to join trade unions

Employee duties –

Compliance with labout contract – Staying loyal to a firm and not breaching terms

Compliance with the law – Should not engage in bribery etc

Respect employer property – Should not engage in authorised use of computers etc

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Ethical challenges of globalization

As different cultures view employee rights and responsibilities differently, it is vital that employees overseas understand the cultural bias of morality in that country. In this case, absolutism suggests a one size fits all approach, whereas relativism suggests that ethics depends on the context.

Changing standards has led to a ‘race to the bottom’ approach which creates hazard conditions and poor living standards.

The growing number of migrant workers may lead to social phenomena (i.e. – drug use) and possible illegalities. Furthermore, migrant workers reduce the number of job opportunities for local employees.

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Ethical issues in marketing management

Ethical issues may arise in the product policy, so manufacturers must take due care to ensure that the products are safe to use.

Ethical issues may arise in the marketing communications, as a result of individual and social factors…

-          Individual factors – Companies should not mislead of deceptive to create false beliefs

-          Social factors – Companies should be aware of the consequences of promoting materialism

Ethical issues may stem from pricing strategies adopted by firms, such as excessive, deceptive or predatory pricing.

Ethical issues may arise from distribution channels, as retailers may demand ‘slotting fees’ to stock particular products.

Ethical issues may also arise from targeting vulnerable customers, such as children who are exposed to cigarette adverts, or old people who are targeting by door to door salesmen.

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Civil society organisations

CSOs include pressure groups and non-governmental organisations etc, who are involved in the promotion of certain interests, causes, and/or goals. (ie – environmental protection etc.).

The main role of CSOs is to represent the interests of individual stakeholders, and forming CSOs can give them greater voice and influence. CSOs tend to fall into two main groups…

1)      Section groups

Represents interests of its members through consulting with businesses in order to achieve its goals. Pressure is exerted though the threat of withdrawal.

2)      Promotional groups

Focused on promoting specific issues using an argumentative approach towards firms, in an attempt to achieve its goals. Pressure is exerted though mass media publicity.

CSOs use a range of tactics in order to promote their causes and seek corporate recognition and response. This may include indirect action, violent direct action, non-violent direct action, and violent direct action.

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Ethical issues faced by governments

Most ethical issues arising within government relate to the closeness of business-government relations. This is because governments are mutually dependent on society and business, which could potentially lead to conflict of interests. There are various issues which they face…

Lobbying – Direct attempt by firms to influence government decision making though persuasion.

Party financing – Donations to parties by firms, although this could raise conflict of interest

Revolving doors – Conflict of interest as to who the individual is acting on behalf of

Corruption – Bribery could lead to ‘state capture’

Privatization – Privatized firms are likely to make economic, rather than politically based decisions 

*‘State capture’ refers to when private firms shape the formulation of regulation by paying politicians.

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Government tackling sustainability issues

Governments have a crucial role in terms of promoting sustainable development within businesses, and can help provide a structured framework for sustainability. These include…

Implementing legislation – This requires firms to conform or face sanctions

Creating incentives – This increases the likelihood of firms seeking sustainability measures

Eliminating barriers – This includes reducing the time taken for planning permission etc

Sustainable practices – Governments should set an example themselves (i.e. – energy saving)

Promotion – Increased adverts raising the awareness of climate change etc

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This refers to the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service. The seven deadly sins include…

Sin of hidden trade-off – Basing the ‘greenness’ of a product based of only certain attributes

Sin of no proof – Claims that cannot be proven by easily accessible information

Sin of vagueness – Poorly defined claims that are easy to misunderstand

Sin of worshipping false labels – Fake labels to give the impression of authenticity

Sin of irrelevance – Truthful, but unimportant claims

Sin of the lesser of two evils – Distracts consumers from the greater environmental impacts

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Triple bottom line

This suggests that businesses do not just have on single goal (adding economic value), but they also have extended goals in order to add long-term environmental and social values too.

Social perspective – Organisations have a responsibility to employees, as well as the wider communities in which it works, in order to maintain social justice. For example, creating safe work conditions.

Environmental perspective – Committing to sustainable environmental practices is good business, as organisations can save money and reduce their environmental footprint. For example, waste disposal.

Economic perspective – This relates to the economic impact an organisation has on its economic environment. For example, increased standard of living and also job creations.

TBL allows a company to distinguish itself from competitors, save costs, help identify new opportunities, and also reduce liability to keep firms one step ahead of future legal changes.

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Corporate benefits of sustainable development

 Sustainable development is development that meets the needs of the present, without compromising the ability of future generations to meet their own needs. Sustainable practices within organisations can also lead to a variety of benefits…

  • Enhanced brand reputation - Sustainable practices may appeal to consumers
  • Cost reductions - Firms may use energy efficient bulbs etc
  • Employee satisfaction - This is likely to increase retention, commitment and attraction
  • Innovative and creative ideas - This may help differentiate the firm from rivals
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How can businesses contribute to sustainability

Producing environmentally responsible products – Using eco labels etc

Product recapture – Potential to be brought back into production (i.e. – recyclable)

Engaging in service replacements – Renting or leasing products, which reduces production


How can consumers contribute to sustainability

Purchase environmentally responsible products

Sharing products – This will help reduce consumption

Reducing demand – Deciding not to purchase unnecessary products

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