BE-01-01 Introduction to Business Ethics

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This is lesson one of six on business ethics.

Here are links to the other five:

Lesson 01-01, Lesson 01-02

Lesson 02-01, Lesson 02-02

Lesson 03-01, Lesson 03-02

INTRODUCTION

Beyond obedience to the law, what responsibility do corporations have to act ethically or in the social interest? Part of the role of an ethical business is to maximize profits in order to increase revenue to shareholders. Thus, any money spent on corporate social responsibility (CSR) measures could be seen as wasteful or unrelated to business objectives.

CSR extends beyond the traditional view of charity and involves employee policies, a corporation's relationship to the community, and sustainable business models. For example, a business whose core operations pollute the environment or exploit workers would not be considered socially responsible. What's known as the Triple Bottom Line incorporates "people, planet, and profit" into the measurement of a company's success.

Some believe that companies should abide by a "stakeholder theory," in which they are responsive, not only to investors, but to governments, civil society, and the general public. Does social responsibility improve the bottom line? How can these interests be balanced?

INSTRUCTOR PREPARATION NEEDED

Understanding of the various theories related to business ethics, including shareholder v. stakeholder value, sustainable business practices, corporate social responsibility, and philanthropy.

LESSON PLAN

A. In-Class Activities
Watch: Documentary film The Corporation

Do: Discussion (30 minutes)
Ask students to contemplate the following questions in relation to The Corporation:

I. Are corporations in aggregate beneficial for society? Should corporations be required to actively contribute to social causes, or merely to do no harm?

II. Should corporations be granted rights normally accorded to individual citizens?

III. What effects do corporations have on government via lobbying and donations? What are the current regulations limiting the political influence of businesses? Are those regulations effective, or should they be either stricter or more lenient?

IV. Is it socially unsustainable for average CEO compensation to exceed the average worker's wage by a factor of 400 or more? Besides monetary compensation, in what other ways can companies recruit, incentivize, and reward talent?

B. Assignments to Be Completed in Advance
Read:
Thomas Donaldson, "Moral Minimums for Multinationals," Ethics & International Affairs 3 (1989)
http://www.cceia.org/resources/journal/03/articles/321.html

Donaldson argues that major changes are necessary in the decision-making process as well as in the conduct of multinational corporations in order to exercise moral obligations and meet culture-specific needs of host countries.

William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corporation: Kantian Capitalism," in chapter 2 of Ethical Theory and Business (Englewood Cliffs, NJ: Prentice Hall, 2008)

Evan and Freeman critique managerial capitalism, or "shareholder theory," and explain an alternative view that the role of a corporation is to balance the needs of all stakeholders.

Milton Friedman, "The Social Responsibility of Business Is to Increase its Profits," The New York Times (September 13, 1970)
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

According to Friedman, corporate managers are primarily agents of the corporation's owner. Though managers may feel the need to give money to charity or in some way engage in a social cause, they do so as individuals, not businesses.

Giles Gibbons, "Brands focus: Social marketing—The power of suggestion," Ethical Corporation (April 22, 2009)
http://www.ethicalcorp.com/content/brands-focus-social-marketing-%E2%80%93-power-suggestion

Brave brands should exceed consumer expectations by using their power to pursue social causes, says Gibbons.

Michael E. Porter and Mark R. Kramer, "Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility," Harvard Business Review (December 1, 2006)

How should executives think about CSR? Perceiving social responsibility as an opportunity rather than as damage control or a public relations campaign requires a mindset that, according to the authors, will become increasingly important to competitive success.

RELATED ETHICS QUESTIONS

A. Corporations are legal entities independent of their founders, employees, and investors. This limits the liability of individuals involved in the company, should something go wrong with corporate operations. Some companies, including Nikon, have replaced their traditional corporate charters with "corporate social responsibility charters." Should all companies undertake similar initiatives? How real are the obligations in CSR charters? What other ways can social responsibilities be defined and upheld?

B. In light of climate change, the financial crisis, and globalization in general, should we reform companies to put people and sustainability before profit? Can companies be responsive to the needs of their consumers and investors and also lead the way in influencing values and advancing social causes?

C. Should we regulate companies so that they internalize costs, such as environmental degradation? At what level should standards be set, and by whom? How can realistic and effective standards be agreed upon?

ADDITIONAL RESOURCES

Business Ethics Timeline, Ethics Resource Center
http://www.ethics.org/resources/business-ethics-timeline.asp

This timeline follows the development of business ethics through five decades, examining ethical climate, major ethical dilemmas, and business ethics developments.

Caseplace.org, The Athens Institute Center for Business Education
http://www.caseplace.org

CasePlace.org is a practical and dynamic resource for up-to-date case studies, syllabi and innovative MBA teaching materials on business and sustainability—from corporate governance to sustainable development.

Alexander Dahlsrud, "How Corporate Social Responsibility is Defined: An Analysis of 37 Definitions," Corporate Social Responsibility and Environmental Management (September 18, 2006)
http://www.policyinnovations.org/ideas/policy_library/data/01518

Despite numerous efforts to bring about a clear and unbiased definition of CSR, there is still some confusion as to how CSR should be defined. This paper explores existing definitions.

Ray Fisman, "Comparison Shopping: The real reason CEO compensation got out of hand," Slate (May 11, 2009)
http://www.slate.com/id/2218091/

Half a century ago, the median pay of top executives in U.S. companies was 30 times an average worker's salary; by 2005, the ratio was nearly 110. How did we get here?

Daniel Franklin and Tobias Webb, "The Economist on how CSR has changed from 2008-2009," (audio), Ethical Corporation (May 12, 2009)
http://www.ethicalcorp.com/content/economist-how-csr-has-changed-2008-2009

Ethical Corporation's Tobias Webb interviews Daniel Franklin, executive editor of The Economist, on how he feels CSR has moved on in the last twelve months.

William C. Frederick,"Yes, Virginia, there is a Corporate Social Responsibility" Policy Innovations (January 18, 2007)
http://www.policyinnovations.org/ideas/commentary/data/CSR

Frederick argues that CSR has injected a new awareness of social values into business decisions, operations, policy, and strategy.

Jeff Hittner, "Information Gaps Hinder CSR Achievement," Policy Innovations (June 9, 2009)
http://www.policyinnovations.org/ideas/innovations/data/000131

IBM recently completed its second annual survey of senior executives from around the world on the importance of green and sustainability issues to their corporate strategies, and the results are encouraging in some respects. But they also indicate how far businesses still need to go to be truly sustainable.

Art Kleiner, "Daniel Yankelovich: The Thought Leader Interview," strategy+business (Fall 2005)

America's most eminent pollster says the current epidemic of business scandals must be healed through a shift in norms, not laws.

Resources: Corporate Responsibility, Harvard Business School Social Enterprise Initiative

A selection of books, articles, case studies, and more resources produced by Harvard Business School on the topic of corporate responsibility.

Reggie Van Lee, Lisa Fabish, and Nancy McGaw, "The Value of Corporate Values," strategy+business (Summer 2005)

A Booz Allen Hamilton/Aspen Institute survey of corporate behavior finds that leading companies are crafting a purpose-driven identity.

Tony Webb, "Corporate social responsibility in a recession: 10 reasons to keep doing it," Ethical Corporation (October 24, 2008: Blog)

While many corporate executives are worried, rightly, about their budgets for next year, there are many good reasons for continuing efficient responsible business initiatives in 2009, says Webb.

 

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