Business Ethics

Lecturer: Piet Westerhuis

Windesheim University,Zwolle

The Netherlands

Introducing Business Ethics

Lecture 1

Overview

• What is business ethics?• Why is business ethics important? • Globalization: a key context for business

ethics?• Sustainability: a key goal for business ethics?

What is business ethics?

Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.

Ethics and the law

Ethics

Law

grey area

Defining morality, ethics and ethical theory

• Morality is concerned with the norms, values and beliefs embedded in social processes which define right and wrong for an individual or a community.

• Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for any given situation.

• These rules and principles are called ethical theories.

The relationship between morality, ethics and ethical theory

…that can be applied to any situation.

… to produce ethical theory …

Ethics rationalizes morality …

Morality Ethics Ethical theory

Potential solutions to

ethical problems

Why is business ethics important?

1. Power and influence of business in society

2. Potential to provide major contribution to society

3. Potential to inflict harm

4. Increasing demands from stakeholders

5. Lack of business ethics education or training

6. Continued occurrence of ethical infractions

7. Interesting and rewarding

Types of misconduct across sectors

24%

21%

19%

22%

20%21%

27%

24%25%

0

10

20

30

Putting own interests

ahead of org

Lying to employees

Abusive behavior

Nonprofit

Business

Government

© 2

008

Eth

ics

Res

ourc

e C

ente

r

Source: Ethics Resource Center (2008)

Observed ethical misconduct across sectors

Source: Ethics Resource Center (2008)

46%

43%

49%

55%46%

56%55% 52%

57%57%

52%

60%

0%

25%

50%

75%

2000 2003 2005 2007

© 2

008

Eth

ics

Res

ourc

e C

ente

r

Nonprofit

Business

Government

Differences across organizational types

Shareholder orientation; size and complexity

Financial integrity, employee/customer issues

Formal, public relations and/or systems-based

Shareholders and other stakeholders

Stakeholders Public sector organizations

Main priorities in addressing ethical issues

Responsible and/or accountable to

Main constraints

Approach to managing ethics

Civil society organizations

Small businesses

Large corporations

Rule of law, corruption, conflict of interest; procedural & accountability issues

Delivery of mission to clients; integrity of tactics; legitimacy and accountability

Financial integrity, employee/customer issues

Formal, bureaucratic Informal, values-based

Informal, trust-based

General public, higher level government organizations

Donors and clientsOwners

Inertia, lack of transparency

Lack of resources and formal training

Lack of resources and attention

Globalization: a key context for business ethics?

What is globalization?

• Globalization is not the same asis not the same as:– ‘internationalization’ – ‘westernization’

• Globalization isis: a process which diminishes the necessity of a common and shared territorial basis for social, economic, and political activities, processes, and relations.– ‘deterritorialization’

Relevance of globalization for business ethics

• Cultural issues• Legal issues• Accountability issues

Globalization can affect all stakeholders of the

corporation

Ethical impacts of globalization

Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of global capital markets, leading to additional financial risks and instability.

Corporations outsource production to developing countries in order to reduce costs in global marketplace - this provides jobs but also raises the potential for exploitation of employees through poor working conditions.

Global products provide social benefits to consumers across the globe, but may also meet protests about cultural imperialism and westernization. Globalization can bring cheaper prices to customers, but vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs.

Suppliers in developing countries face regulation from MNCs through supply chain management. Small scale indigenous competitors exposed to powerful global players.

Global business activities brings the company in direct interaction to local communities with possibility for erosion of traditional community life; globally active pressure groups emerge with aim to “police“ the corporation where governments are weak and tolerant.

Stakeholders Ethical impacts of globalization

Shareholders

Employees

Suppliers & competitors

Civil society (NGOs, etc)

Government & regulation

Consumers

Globalization weakens governments and increases the corporate responsibility for jobs, welfare, maintenance of ethical standards, etc. Globalization also confronts governments with corporations from different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy.

International perspectives on business ethics

Different approaches to business ethics

• Who is responsible for ethical conduct in business?

• Who is the key actor in business ethics? • What are the key ethical guidelines for ethical

behaviour? • What are the key issues in business ethics? • What is the most dominant stakeholder

management approach?

Regional differences: Europe, North America, Asia

The individual

Europe N. America Asia

Who is responsible for ethical conduct in business?

Who is the key actor in business ethics?

What are the key guidelines for ethical behaviour?

What are the key issues in business ethics?

What is the dominant stakeholder management approach?

Top management

Government, corporations

Managerial discretion

Corporate governance and accountability

Implicit multiple stakeholder approach, benign managerialism

The corporation

Corporate codes of ethics

Misconduct and immorality in single decisions situations

Focus on shareholder value

Social control by the collective

Government, trade unions, corporate associations

Negotiated legal framework of business

Social issues in organizing the framework of business

Formalised multiple stakeholder approach

Sustainability: a key goal for business ethics?

Defining sustainability

• Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (World Commission on Environment and Development 1987)

• Sustainability refers to the long-term maintenance of systems according to environmental, economic and social considerations

The three components of sustainability

Economic Social

Environmental

Triple bottom line

• Coined by John Elkington• Bottom line thinking suggests sustainability

as a goal• Three dimensions:

– Environmental perspectives– Economic perspectives– Social perspectives

Corporate commitments to sustainability

“At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support of our customers, shareholders and the communities in which we operate.”

“[Sustainability] means enhancing our relationship with host and partner governments, building consumer confidence in diamonds, and ensuring our activities contribute positively to … both present and future generations.”

“Corporate responsibility (CR) at Nokia is a collective effort. We believe that management of CR issues is most effective when sustainability policies and programs are embedded in every aspect of our operations. ”

“ [For Toyota, a guiding principle is] ‘contributing to the development of a prosperous society through the manufacture of automobiles.’ ‘Contributing to the development of a prosperous society’ means ‘contributing to the sustainable development of the earth.’” “Values, social responsibility and active sustainability are integral [to] our company culture. We are future-oriented in our approach to important issues such as climate change. We operate a broad range of [R&D] activities and provide trend-setting approaches to the mobility of tomorrow.”

Company Sustainability statement Source

BP

DeBeers

Nokia

Toyota

Volkswagen

Sustainability Report, 2007

www.debeersgroup.com, 2009

CSR Report, 2007

Sustainability Report, 2008

www.volkswagenag.com, 2009

Summary

• Definition of business ethics• Business ethics is vital for business in

contemporary capitalism• Global view is essential to understand ethical

issues• Different regions have distinctly different

perspective on business ethics issues• Sustainability is an important goal for

business ethics