Book Summary EIB (Crane & Matten CH 1-9) Book Summary EIB (Crane & Matten CH 1-9)

lOMoARcPSD|4774703
Book Summary EIB (Crane & Matten CH 1-9)
Ethics and International Business (Rijksuniversiteit Groningen)
StudeerSnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit

Gedownload door Dan Garcia (dangarcia199@gmail.com)
lOMoARcPSD|4774703
PART A: UNDERSTANDING BUSINESS ETHICS
Chapter 1: Introducing Business Ethics
Business ethics is the study of business situations, activities, and decisions where
issues of right and wrong are addressed. These issues of right and wrong are moral
issues, and not economical or financial issues.
Ethics and law
Ethics and law are two intersecting domains. Law is a definition of the minimum
acceptable standards of behaviour. However, it does not always cover every ethical issue
in business. Therefore, ethics is called the “grey area”, covering the things that cannot be
covered by law. Examples:
 Ethics deals with things such as testing products on animals, which is not legally
wrong
 Law deals with basic things, such as whether we should drive left or right, which is
not an ethical issue
Ethical questions are “equivocal”, meaning that there is no definitive “right” answer. We
rather have the choice between several options, of which each has some right and wrong
aspects that have to be weighted.
Ethics and morality

“Morality” and “ethics” are often used interchangably, but there is a slight difference:
Morality is concerned with norms, values, and beliefs embedded in social processes
which define right and wrong for an individual or community.
Ethics is concerned with the study of morality and the application of the reason to
enlighten specific rules and principles that determine certain courses of action.
Ethical theories are the codifications of these rules and principles.
There are several reasons why business ethics is so important:

1. Business has a huge power within society
2. Business has the potential to provide a major contribution to our society
3. Business malpractice has the potential to inflict enormous harm on individuals,
communities, and the environment
4. Demands from stakeholders are more complex and challenging
5. Employees face pressure to compromise ethical standards
6. Business face a trust deficit
Business ethics in different organizations

lOMoARcPSD|4774703
Business ethics is not only an important topic for large organizations, but also for small
companies. Small businesses differ their attention and approach, as they deal with a lack
of time and resources, as well as amount of autonomy. Furthermore, they mainly deal
with employee issues, as this is their biggest stakeholder group. See the figure below
(1.4 from the book):
Large Small Civil society Public sector

corporations Businesses organizations organizations
Main Financial integrity, Employee Delivery of Rule of law,
priorities in employee/custome issues mission to corruption,
addressing r issues clients; conflicts of
ethical integrity of interests;
issues tactics; procedural
legitimacy and issues,
accountability accountability
Approach Formal, public Informal, Informal, Formal,
to relations and/or trust-based value-based bureaucratic
managing system-based
ethics
Responsibl Shareholders and Owners Donors and General public,
e and/or other stakeholders clients higher level
accountabl government
e to organizations
Main Shareholder Lack of Lack of Inertia, lack of
constraints orientation; size resources and resources and transparency
and complexity attention formal training
Globalization
Globalization is the ongoing integration of political, social, and economic interactions at
the transnational level, regardless of physical proximity or distance.
Globalization is also an important topic of business ethics, as it imposes new issues and
challenges. An example is the “race to the bottom” issue, meaning that large
companies are always seeking for a cheaper production site, resulting in countries
competing against each other by providing lower production costs (i.e. labour costs),
until the price cannot be lowered anymore.
Globalization is particularily relevant for business ethics in three areas:

1. Cultural issues
2. Legal issues
3. Accountability issues
Furthermore, globalization has certain ethical impacts on different stakeholders. This is

shown in figure 1.5 in the book.
Also, there are differences between cultures and countries on how to deal with ethical
issues. These are given in figure 1.6 of the book:
Europe North America Asia

Who is Social control by The individual Top management
responsible for the collective
ethical conduct in
business?
Who is the key Government, trade The corporation Government,
actor in business unions, corporate corporations
ethics? associations
What are the key Negotiated legal Corporate codes of Managerial
guidelines for framework of ethics discretion

lOMoARcPSD|4774703
ethical business
behaviour?
What are the key Social issues in Misconduct and Corporate
issues in business organizing the immorality in single governance and
ethics? framework of diecisions situations accountability
business
What is the Formalized multiple Focus on Implicit multiple
dominant stakeholder shareholder value stakeholder
stakeholder approach appraoch, benign
management managerialism
approach?
These differences are caused by cultural, economic, and religious differences. Examples:
 Catholic and Lutheran Protestant in Europe leading to a collective approach to
organizing the economy
 The impact of WWII and the rebuilding of the society on (Eastern) Europe
 The colonial history of Africal, leading to poor governance and poverty
Sustainability
Sustainability is the long-term maintenance of systems according to environmental,
economic and social considerations. This is also shown in the triangle below:
The Triple Bottom Line (TBL) is the idea that business does not have just one single
goal (adding economic value), but that it also needs to add environmental and social
value too.
 Environmental  effective management of physical resources
 Economic  company’s attitude towards the economic framework it is part of
 Social  issue of social justice (allocation of world’s GDP) and the wealth
distribution between the top 1% and the rest of society (Robert Reich)
Chapter 2: Framing Business Ethics
Corporations are separate entities in their own right. It owns its own assets. Key
implications:
 Corporations are typically regarded as ‘artificial persons’ in the eyes of the law
o They have certain rights and responsibilities in society
 Corporations are nationally ‘owned’ by shareholders, but exist independently of
them
o Shareholders are not responsible for the debts or damages caused by the
corporation
 Managers and directors have a ‘fiduciary’ responsibility to protect the investment
of shareholders
o Managers should hold shareholders’ investment in trust and act in their
best interest
Can a corporation have social responsibilities?

lOMoARcPSD|4774703
Milton Friedman questioned the social role of corporations. His arguments boil down to
three concerns:
1. Only human beings have a moral responsibility for their actions
2. It is managers’ responsibility to act solely in the interest of shareholders
3. Social issues and problems are the proper province of the state rather than
corporate managers
Can a corporation be morally responsible for its actions?

Four considerations:
1. Legal identity
Corporations have a distinct legal identity: they enter into contracts, have legal
responsibilities (e.g. paying taxes) and certain obligations. They also have a
number of rights.
2. Agency
Corporations can also be said to decide and act independent of their members.
Although individuals act in this as well, corporations have an organized framework
of decisionmaking.
3. Organizational culture
All corporations have their own set of beliefs and values, which have a strong
influence on the individual’s ethical decision-making and behaviour.
4. Functional identity
Many corporations refer to themselves as corporate ‘citizens’ and espouse the
aspiration to act as a good neighbour and partner with other members of society.
Companies interact with customers as objects of affection (e.g. McDonald’s “I’m
loving it” slogan) or as having a human face (e.g. KFC’s Colonel Sanders or P&G’s
Mr. Clean)
Thus, corporations do have some level of moral responsibility.
Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is the attempt by companies to meet
economic, legal, ethical and philanthropic demands of a given society at a particular point
in time.
 Why do corporations have social responsibilities?

There are a number of different arguments for this, of which most tend to be based on
the term ‘enlightened self-interest’, meaning that the corporation takes on social
responsibilities to promote its own self-interest:
 Enhance revenues
 Reduce costs
 Manage risk and uncertainty
 Maintaining the social licence to operate
These are all reasons for a company to act in a socially responsible manner. However, all
these reasons also contribute to a company’s profit. It is therefore questionable whether
social responsibility was actually the main reason for these actions in the first place.
Hence, in addition to business arguments for CSR, it is also important to consider moral
arguments:
 The externalities argument: exteralities are the positive and social impacts of
an economic transaction that are born by other parties than the ones engaging in
the transaction. Corporations have a moral responsibility to deal with, in particular
to negative externalities (e.g. pollution, resource depletion, etc)
 The power argument: corporations should use their power and resources
responsibly in society. Is called the Spiderman maxim: “with great power comes
great responsibility”
 The dependency argument: corporations rely on the contrubition of many
stakeholders in society, and hence have aduty to take into account the interests
and goals of these stakeholders

lOMoARcPSD|4774703
 What is the nature of these social responsibilities?
Carroll regards CSR as a multilayered concept, which can be differentiated into four
interrelated aspects: economic, legal, ethical and philanthropic responsibilties. See the
pyramid on the next page (figure 2.1 in the book).
 Economic: is the basis, as they have shareholders and employees and customers
that demand different things; required by society
 Legal: business should ‘play by the rules of the game’; required by society
 Ethical: corporations should do what is right, just, and fair; expected by society
 Philanthropic: activities to improve the quality of life of employees and society;
desired by society
Limitation: it does not adequately address the problem of what should happen when two
or more responsibilities are in conflict.
CSR in an international context

CSR has been particularly prominent in the US and only recently became influencial in
other parts of the the globe. The US implements an explicit CSR model, which means
that CSR is a distinct activity of private companies. Other countries have operated a
more implicit CSR model that sees social responsibilities of business tightly embedded in
the legal and institutional framework of society (i.e. by regulation).
Strategies of CSR
There are two strategies towards CSR: ‘Traditional CSR’ and ‘Conteporary CSR’. These
are given in figure 2.2.:
Traditional CSR Contemporary CSR
Focus Risk Reward
Driver Image, brand, public Performance, markets,
acceptance products
Relation to the bottom No direct contribution: CSR is Integral goal: CSR is value
line value distribution creation
Responsiveness Reaction, defence Accomodation, pro-action
Motto ‘CSR is bolt-on’ ‘CSR is built-in’
Outcomes of CSR
Corporate social performance can be observed as the principles of CSR, the processes of
social responsiveness (or “CSR strategy”), and the outcomes of corporate behaviour.
These outcomes are delineated in three concrete areas:

lOMoARcPSD|4774703
 Social policies – states companies values, beliefs, and goals with regard to its
social environment
 Social programmes – specific social programmes of activities, measures and
instruments implemented to achieve social policies
 Social impacts – social impacts can be traced by looking at concrete changes
that the corporation has achieved through the programmes implemented in any
period
Stakeholder theory of the firm

Stakeholder is an individual or group that, in the context of a specific situation, is either
harmed by, or benefits from, the corporation, or whose rights the corporation should
respect.
The stakeholder approach looks at various groups to which the corporation has a
responsibility. Figure 2.4 shows a typical representation of the stakeholder theory of the
firm. There are three types:
Traditional management model; company is only related to four groups (suppliers,
employees, shareholders, and customers) and the shareholders are the dominant group
whose interest should take precedence
Stakeholder model; company has obligations to many different groups, and is at the
centre of a series of interdependent two-way relationships
The network model; stakeholder groups also have duties and obligations to their own set
of stakeholders, creating a model with an even more broader network
Different forms of stakeholder theory

There are three forms of stakeholder theory (Donaldson & Preston):
 Normative stakeholder theory – this is the theory that attemps to provide a
reason why corporations should take into account stakeholder interests
 Descriptive stakeholder theory – this is a theory that attempts to ascertain
whether (and how) corporations actually do take into account stakeholder
interests
 Instrumental stakeholder theory – this is the theory that attempts to answer
the question of whether it is beneficial for the corporation to take into account
stakeholder interests
Corporate citizenship – the firm as a political actor

In Friedman’s view, corporations should not undertake social policies and programmes as
this is the task of the government. The main challenge to Friedman’s view comes from
the fact that corporations today have taken a role in society that overlaps and interferes
quite substantially with that of governments. Let us consider three main areas where this
has happened:
 Governments retreating from catering to social needs
 Governments unable or unwilling to address social needs
 Governments can only address social problems within their reach
The concept of corporate citizenship

Liberal citizenship comprises three different rights:
 Social rights
 Civil rights
 Political rights
The key actor for governing these rights for citizens is the government. However,
corporations are regarded as ‘artificial persons’ and so do enjoy some of the rights and
obligations of other citizens. But, this is not the reason why corporate citizenship
exists.The reaons is that, as powerful public actors, corporations can have a significant
impact on the ‘real’ citizens rights. Hence, corporations enter the arena of citizenship at
the point where traditional governmental actors fail to be the only ‘counterpart’ of
citizenship (see above, the firm as a political actor).

lOMoARcPSD|4774703
Examples are given on page 71 of the book.
Thus, corporate citizenship is the corporate role in governing citizenship rights for
individuals.
Corporate citizenship = social role of the corporation in governing citizenship

Social rights  Corporation as provider/ignorer
Civil rights  Corporation as dis-/enabler
Political rights  Corporation as channel/blockage
Implications of CC
Corporate accountability is the concept that refers to whether a corporation is
answerable in some way for the consequences of its actions.
“Can the corporation be held accountable for its actions?”
Corporate transparency is the degree to which corporate decisions, policies, activities,

and impacts are acknowledged and made visible to relevant stakeholders
Three elements:
 Disclosure: whether relevent information is made available in a timely and
accessible manner
 Clarity: the degree to which the information is understandable to relevant
stakeholders
 Accuracy: whether the disclosed information is correct and reliable
Example: ingredient transparency on food, household products and beauty products
Chapter 3: Evaluating Business Ethics
Normative theories = the rules and principles (theories) that determine right and
wrong for a given situation
 Morally correct way of acting
Two concepts:
 Ethical absolutism
 There are eternal, universally applicable moral principles
 Right and wrong are objective qualities that can be rationally determined
 Ethical relativism
 Morality is context-dependent and subjective
 What is right and wrong depends on the person making the decision and
the culture in which they are located
 Sets of beliefs can be equally right (other than descriptive relativism)
Ethical pluralism combines the two extremes: it accepts different moral backgrounds, but
also relies on basic principles and rules in a certain social context.
According to John Kaler, we already know two basic things about morality without the
use of ethical theories:
 It is a social phenomenon – everyone has diferent views on morality, but it is
necessary to structure our social life
 It is about harm and benefit
Ethical theories vary internationally. There are three main differences betweeen Europe
and North America:
 Individual versus institutional morality
Normative ethical theories in the US tend to be more applicable to individual
behaviour, whereas in Europe the design of institutions in the economic system
seems to be the main influence in developing and applying theory

lOMoARcPSD|4774703
 Questioning versus accepting capitalism

Business ethics literature in the US does not question the existing framework of
management, but rather sees ethical problems occuring within the capitalis
system. In Europe, relevant parts of business ethics focus on questioning the
ethical justification of capitalism.
 Justifying versus applying moral norms
In Europe, the challenge for business ethics on the theoretical level often involves
the justification and ethical legitimation of norms. In the US, however, these
issues do not seem to take such a dominant position: most textbooks treat the
question of which moral values are appropriate as given and focus therefore on
the application of morality to business situations
Furthermore, Asian theories are more based on religion.
Normative ethical theories and religion

Generally, there are two types of ethical theories: religious and philosophical. The two
main differences between those ethical theories are:
 Source of rules and principles
o Religions  beliefs  faith is necessary
o Philosophical  reason  rationality is key
 Consequences of morality and immorality
o Religions  also consider spiritual consequences for the decision-maker.
Examples: salvation, enlightenment, reincarnation, or damnation
o Philosophical  creating tangible social benefits and harms for others
Western modern ethical theories

 Based on philosophical thinking
 Absolutist in intention (rule/principle one can apply to the situation
 Two main groups: non-consequentialist and consequentialist:
Consequentialist ethics = based on intended outcomes, aims, or goals of a certain

action
Non-consequentialist ethics = start from reasoning about individual’s rights and
duties; look at desirable principles and base a ‘duty’ on these principles.
The two types of ethics will be discussed now in more detail, by also highlighting the four
main normative theories that are important.
In total, there are four important philosophical theories. These are also summarized in
figure 3.2:
Egoism Utilitarianism Ethics of Ethics of

duties justice
Contributors Adam Smith Jeremy Immanuel Kant John Locke
Milton Friedman Bentham John Rawls

lOMoARcPSD|4774703
John Stuart Mill

Focus Individual Collective Duties Rights
desires or welfare
interests
Rules Maximization of Act/rule Categorical Respect for
desires/self- utilitarianism imperative human beings
interest
Concept of Humans are Humans are Humans are Humans are
human actors with motivated by rational moral beings that are
beings limited avoidance of actors distinguished
knowledge and pain and gain of by dignity
objectives pleasure
Type Consequentialis Consequentialis Non- Non-
t t consequentialis consequentialis
t t
Consequentialist theories  Focus on outcomes

 Egoism
 Utilitarianism
Egoism
Egoism is a theory that suggests that an action is morally right if in a given situation all
decision-makers freely decide to pursue either their (short-term) desires or (long-term)
interests
The underlying concept is that we humans only have limited insight in the consequences
of our actions, meaning that to achieve a good life, we should pursue our own desires
and interests
The main contributors to this theory are Adam Smith and Milton Friedman. Adam Smith
beliefs that self-interest is acceptable in an economic system, because it produces a
morally desirable outcome through the “invisible hand” of the marketplace.
Important to remark is that egoism is not the same as selfishness!!!
Egoism is based on the pursuit of interest. So, the focus is on the individual desires or
interests. And the rule is to maximize this.
Utilitarianism
Utilitarianism is a theory which states that an action is morally rhigt if it results in the
greatest amount of good for the greatest amount of people affected by the action 
“Greatest happiness principle”
It does not only look at the individual, like egoism does, but it focuses on the collective
welfare that is generated by a certain action.
The main contributors to this theory are Jeremy Bentham and John Stuart Mill. According
to Bentham, the notion of utility is the ultimate goal in life. People should maximize
pleasure, and minimize pain (also to others).
The theory also focuses on a “cost-benefit analysis” (example of the train in the
lecture)
 To each action and each person, we can attach a certain utility
 The action with the highest utility is morally correct
 Utility is the economic value of actions: a calculation of “pleasure”and “pain” –
the action with the highest amount is the most desirable one

lOMoARcPSD|4774703
However, there are some problems with this utilitarianism and cost-benefit analysis:
1. Subjectivity: ‘pleasure’ and ‘pain’are based on subjective perspective, that can
differ among individuals
2. Problems of quantification: it is difficult to assign costs and benefits to every
situation. Example: pleasure and pain of children is not measurable
3. Distribution of utility: interests of minority are overlooked, as it focuses on the
greatest amount of good for “the greatest amount of people”
The problem of subjectivity has lead to a refinement of the theory, resulting in two types:
 Act utilitarianism: looks at single actions and bases the moral judgement on the
amount of pleasure and the amount of pain it causes
 Rule utilitarianism: looks at classes of action and asks whether the underlying
principles produce more pleasure than pain for society in the long run
Non-consequentialist theories  stem for assumptions

 Ethics of duties
 Ethics of rights and justice
Ethics of duty
Ethics of duty are ethical theories that consist of abstract, unchangeable obligations,
defined by a set of rationally deduced “a priori” moral rules, which should be applied to
all relevant ethical issues
The main contributor tho this theory is Immanuel Kant. According to Kant, humans are
rational actors and can decide on principles for ethical behaviour themselves (i.e. no
need for God, the church, etc.). Thus, humans are independent moral actors.
Categorical imperative is a theoretical framework that should be applied to every

moral issue regardless of who is involved. There are three key rpinciples that constitute a
test of whether an action should be deemed legal:
 Consistency
An action is right if the rule guiding that behaviour is consistently followed by
everyone in all cases, without contradition. Example: lying is immoral, because if
everyone were to lie, there would be no truth.
 Human dignity
You should always act so that you treat other humans “always as an end and
never as a means only”. Respect humans as autonomous, rational actors.
 Universality
The rules guiding our actions should also be universally lawgiving: they have to be
acceptable to every rational human being.
“New York Times test”: if you would be uncomfortable with your actions being
reported in the press (such as the New York Times), then it is probably a doubtful,
or immoral action
Especially the consistency principle is visible in different religions as well. In religions it is

often reffered to as the “golden rule”: “treat others as you want to be treated yourself”.
Kant’s theory has been examined in relation to business. Evan and Freeman argue that
the ethical basis of the stakeholder concept has been substantially derived from Kantian
thinking. Hence, in order to treat employees, local communities, and suppliers not only
as means, but also as ends, firms have a fundamental duty to allow these stakeholders
some degree of influence on the corporation.
There are, however, also some problems with the ethics of duty:
 Undervaluing outcomes: too little consideration of the outcomes of one’s actions
in ethics of duty

lOMoARcPSD|4774703
 Complexity: although the basic idea of ethics of duty is quite simple (i.e. is this
action right, and is it my duty to do it), specific formulations such as Kant’s
categorical imperative are quite complicated to apply
 Optimism: the theory is quite optimistic, as it views people as rational actors that
act consequently according to self-imposed duties
Ethics of rights and justice
John Locke conceptualized the notion of ‘natural rights’, or moral claims, that humans
were entitled to, and which should be respected and prtected. The most important rights
were: rights to life, freedom and property.
Most people now talk of ‘human rights’: basic, alienable entitlements that are inherent
to all human beings, without exception. There rights result in a duty for other actors to
respect them, which results in an ethical theory.
Human rights are also imporatn for business ethics, and many businesses respect the
human rights and corporate them in their statements. An example of this are the “ruggie
principles”, which consists of three principles:
(1) the state should protect human rights,
(2) companies should respect human rights, and
(3) judicial and non-judicial remedies should be available if human rights were ignored or
infringed.
Justice is the simultaneous fair treatement of individuals in a given situation with the
result that everybody gets what they deserve.
According to Beauchamp & Bowie, theories of justice see fairness in two ways:
 Fair procedures – fairness is determined according to whether everyone has
been free to acquire rewards for their efforts. This is also called procedural
justice
 Fair outcomes – fairness is determined according to whether th conseuences are
distributed in a just manner (according to some underlying principle). This is also
called distrubutive justice.
The problem of a just distribution of wealth in and between societies has been addressed
in numerous ways, but they fall within two extremes: egalitarianism and non-
egalitarianim:
Egalitarianism sees justice as the same as equality – burdens and rewards should be
distributed equally and deviations from equality are unjust
 Most common example: Karl Marx
o Exploitation of the “working class” in a labour process that provided excess
wealth to capitalists
o Ideas have ben reinvigorated in the context of globalization
 Have problems with the fact that there are differences between people. Example:
should a lazy person earn as much as a hard working person? – as egalitarianism
says that the rewards should be distributed equally, they should. However, this
does not seem fair.
 It is inefficient, since there are no incentives for innovation and greater efficiency.
Everybody is rewarded equally, and thus earn the same amount of money, so why
would you want to do better and more efficient?
Non-egalitarianism sees justice in economic systems as an ultimate product of the fair

process of a free market.
 Actors of needs meet actors who can answer their needs and justice is determined
by the market orces of supply and demand
 An influential thinker is Robert Nozick. According to Nozick is the distribution of
wealth just as long as it has been brought about by just transfers and just original
acquisition.

lOMoARcPSD|4774703
Also called “entitlement theory”, as wealth distribution is morally

o
acceptable as long as ‘everyone is entitled to the holdings they possess”
 But as people differ in income, ability, health and social status, markets can lead
to results that are no longer fair.
Obviously, these two extremes are unsatisfactory. The answer might lie between the two.
A popular approach is that of John Rawls. In his book, a theory of justice, he
suggests two criteria that decide whether an action could be called just:
1. Each person has an equal right to the most extensive total system of basic
liberties compatible with a similar system of liberty for all
= Basic freedoms are realized to the same degree for everyone affected by the
decision
2. Social and economic inequalities are arranged so that they are both:
a. To the greatest benefit of the least advantaged
b. Attached to offices and positions open to all under conditions of fair
equality of opportunity
 Assumes that inequalities are unavoidable in a free and competitive society,
and that this can be justified as long as the two criteria are met.
Limits of modern west theories are:

 Too abstract – too theoretical for managers
 Too reductionist – only focus on one aspect of morality, but all is important
 Too objective and elitist – only specialists know and understand these theories
 Too impersonal – do not consider personal feelings about right and wrong
 Too rational and codified – try to converge right and wrong into rules
 Too imperialist – focus on the west (but probably not applicable in Asia)
Alternatives perspectives on ethical theory are:

1. Ethical appraoches based on character and integrity
 Focus on the decision-maker
 Useful for ethics of professionals
 Virtue ethics = a theory that suggests that morally correct actions are
those undertaken by actors with virtuous characters, and that the
formation of a virtous character is the first step towards morally correct
behaviour
o Virtues are traits or characteristics. Can be intellectual or moral.
o Virtues lead to actions, which are a habitual pattern of behaviour
o Actions lead to happiness
2. Ethical appraoches based on relationships and responsibility

 Feminist ethics = an approach that prioritizes empathy, harmonious and
health social relationships, care for one another, and avoidance of harm
above abstract moral principles (“ethics of care”)
 Key elements: relationships; responsibility; experience
3. Ethical appraoches based on procedures of norm generation

 Generating norms rather than applying ethical theories
 Discourse ethics = an appraoch that aims to solve ethical conflicts by
providing a process of norm generation through rational reflection of the
real-life experience of all relevant participants
 Provide a solution that is acceptable for all  “Ideal discourse”
 Recipe for practical conflict resolution
4. Ethical approaches based on empathy and moral impulse

 Postmodern ethics = an approach that locates morality beyond the
sphere of rationality in an emotional “moral impose” towards others. It
encourages one to question everyday practices and rules, and to listen to

lOMoARcPSD|4774703
one’s emotions, inner convictions, and ‘gut feelings’about what is right and
wrong
 Postmodern business ethics emphasises:
o Holistic appraoch
o Practices rather than principles
o Think local, act local
o Preliminary character
Chapter 4: Making Decisions in Business Ethics
Descriptive ethical theories are theories that describe how ethical decisions are
actually made in business, and explains what factors influence the process and outcomes
of those decisions
 Differs from normative theories, which describe what people should do.
What is an ethical decision? – three important characteristics:

 The decision is likely to have a significant effect on others
 The decision is likely to be characterized by choice, in that alternative courses of
ation are open (“ethical dillema”)
 The decision is perceived as ethically relevant by one or more parties
There are several models of ethical decision-making:

1. James Rest: four-stage model:
a. Recognize a moral issue
b. Make some kind of moral judgement about that issue
c. Establish intentionl to act upon that judgement
d. Act according to their intention
2. Relationship with normative theory  “cost-benefit principle”
a. Example : Chevrolet Malibu Model (same type of dilemma with Ford Pinto)
i. Repositioned the fuel tank of the car, despite knowing that it would
increase in cars catching fire
ii. To change or not to change? Change: huge costs ($8.49 per car),
not change: lower costs ($2.40 per car) – only pay for damage,
relatives, etc.
iii. So decided to kill rather than rebuild
b. This is a very conseuentialist reasoning, which is very prevalent in
organizational decision making
Influences on ethical-decision making

Two categories:
 Individual factors – characteristics of the individual acquired by birth, experience,
and socialization
 Situational factors – particular features of the context that influence the decision
This results in the following framework for understanding ethical decision-making:

lOMoARcPSD|4774703
Individual influences on ethical decision making

Factor Influence on ethical decision-making
Age and gender Very mixed evidence – unclear influence
National and cultural characteristics Significant effect on ethical beliefs; what
is deemed and acceptable
Education and employment Somewhat unclear, but seems to be
present
Psychological factors:
1. Cognitive moral development 1. Small but significant effect
2. Locus of control 2. Limited effect, can be important
predicting apporting of blame/approbation
Personal values Significant infleunce – positive relation
Personal integrity Significant influences likely, but lack of
inclusion in models
Moral imagination New issue with potential, but untested
National and cultural characteristics – Hofstede’s dimensions:

 Individual/collectivist
 Power distance
 Uncertainty avoidance
 Long-term/short-term orientation
 Indulgence
Cognitive moral development (Kohlberg): a theory eplaining the different levels of

moral reasoning that an individual can apply to ethical issues and problems, depending
on their cognitive capacity.
These levels are:
Level Stage Explanation
I Preconventional 1. Obedience and Individuals define right and
punishment wrong according to
expected rewards and
punishments from
authority
2. Instrumental purpose
and exchange Individuals are concerned
with their own interest and
define right according to
whether there is fairness in
the exchanges or deals
they make in order to
achieve those interests
II Conventional 3. Interpersonal accord, Individuals live up by what
conformity and mutual is expected of them by
expectations immediate peers and those
close to them
4. Social accord and
system maintenance Individuals’ consideration
of expectations of others
broadens to social accord
more generally
III Post-conventional 5. Social contract and Individuals go beyond
individual rights expectations and assess
right and wrong according
to rights, values and
contracts of society.
6. Universal ethical
principles Individuals will make

lOMoARcPSD|4774703
decisions autonomously
based on self-chosen
universal ethical principles
There is some criticism of CMD:
- Gender bias (abstract male principles)
- Implicit value judgement (it privileges rights and justice above other bases of morality)
- Invariance of stages
Locus of control determines the extent to which he/she believes that they have control
over the events in their life.
 Internal  events are shaped by own efforts
 External  events are a result of actions of others, luck, or fate
People with an internal locus of control are more likely to consider the consequences of
their actions for others (more responsible). Also, internals are likely to stick their own
beliefs and are more resistant to peer-pressure.
Personal values are individual beliefs about desirable behaviours and goals that are
stable over time and which influence decision-making. Rokeach identifies that values:
persist over time, influence behaviour, and are concerned with individual and/or
collective wellbeing.
Personal integrity is an individual’s adherence to a consistent set of moral principles

and values.
This frequently plays a central role in incidents of whistleblowing (= acts by employees
to expose their employers, either internally or externally, for perceived ethical
violations). The whistleblower ofthen has a high degree of personal integrity.
Moral imagination is whether one has a sense of the variety of possibilties and moral
consequences of their decisiosn, the ability to imagine a wide range of possible issues,
consequences and solutions. (= the creativity with which one is able to reflect on an
ethical dilemma)
Situational influences on ethical decision-making

Type of factor Factor Influence on ethical
decision-making
Issue-related Moral intensity Significant effect
Moral framing Strong influence on some
aspects
Context-related Rewards Strong evidence on ethical
behaviour
Authority Good general support
Bureaucracy Significant influence
Work roles Some influence likely
Organizational culture Strong overall influence
National context Limited investigation, but
evidence suggest a clear
influence for some types of
decisions
Moral intensity is the intensity of the issue. Varies according to 6 factors (Thomas
Jones):
 Magnitude of consequences
 Social consensus
 Probability of effect
 Temporal immediacy
 Proximity
 Concentration of effect

lOMoARcPSD|4774703
Moral framing is the use of language to expose or mask the ethical nature of certan
behaviour or decisions. It is mostly used to make an unethical action look more
accepable to oneself and/or third parties (Example: plagiarism on assignment – “I copy-
pased some material from the internet” sounds less bad)
 Bird & Waters – moral muteness, which is that manager tend to reframe moral
actions and motives. They do thit out of concerns regarding perceived threats to:
o Harmony (moral talk disturbs this)
o Efficiency (moral talk makes decision-making more difficult, time-
consuming, and inflexible)
o Image of power and effectiveness (own image will suffer from being
associated with ethics)
 This can lead to a process of amoralization: managers seek to distance
themselves and their projects form being defined as ethically motivated
 Moral framing can also happen after the decision making process 
rationalization tactics (= mental strategies that allow employees, and others
around them, to view corrupt acts as justified”. There are three steps:
o Denial of responsibility
o Denial of injury
o Denial of victim
o Social weighting
o Appeal to higher loyalties
o Metaphor of the ledger
Authority is the exercise of hierarchical power by managers to make an employee act in

a certain way (that can be an unethical way)
Bureaucracy is a type of formal organization based on rational principles and

characterized by detailed rules and procedures, impersonal hierarchical relations and a
fixed divison of tasks. This has a number of negative effects on ethical decision-making:
 Suppression of moral autonomy
 Instrumental morality
 Distancing
 Denial of moral status
Work roles: we know our roles and know how we are supposed to act according to
them, and we stick to this fairly faithfully. Example: Stanford Prison Experiment (as
discussed in the lecture)
Organizational culture = the meanings, beliefs, and common-sense knowledge that

are shared among members of an organization, and which are represented in taken-for-
granted assumptions, norms, and values. This shapes ethical decision-making, as it has
an influence of what we think is “right” and “wrong”.
Chapter 5: Managing Business Ethics

Business ethics management = the direct attempt to formally or informally managee
ethical issues or problems through specific policies, practices, and programmes
Components of business ethics:

 Mission or value statements
o General statements of corporate aims, beliefs and values
 Codes of ethics
o Outlines a compan’s code or conduct that is desired and expected from
employees
 Reporting/advice channels
 Risk analysis and management

lOMoARcPSD|4774703
 Ethics managers, offices, and commitees

 Ethics consultantes
 Ethics education and training
 Stakeholder consulation, dialogue, and partnership programmes
 Auditing, accounting and reporting
There are three main areas where the management of business ethics is particularly
relevant:
1. Setting standards of ethical behaviour
2. Managing stakeholder relations
3. Assessing ethical performance
To set standards of ethical behaviour, ,companies often design and implement codes of
ethics.
Codes of ethics = a voluntary statement that commits an organization, industry, or
profession to specific beliefs, values and actions and/or that set out appropriate ethical
behaviour for employees
Four types of codes of ethics:

1. Organizational codes of ethics
2. Professional “
3. Industry “
4. Programme or group “
Content of codes of ethics:

 Definition of principles or standards that the organization, profession, or industry
believes in or wants to uphold
 Setting out of practical guidelines or rules for employee behaviour, either
generally or in specific situations
Effectiveness of codes of ethics  there are three factors important: how it is written,
how it is supported and how it is enforced within the company.
Global codes of ethics come with more problems, as they cannot (always) be applicable
to all the countries a company operates in, as there are many and big cultural
differences.
Stakeholder management is the process by which organizations seek to understand

the interests and expectations of their stakeholders and attempt to satisfy them in a way
that aligns with the core interests of the company.
Three things that determine the importance of stakeholders (i.e. which stakeholders are
the most important)
 Power – the amount of power the stakeholder has
 Legitimacy – whether the stakeholder’s actions are desirable, proper or
appropriate
 Urgency – the degree to which stakeholder claims are perceived to call for
immediate attention
Collaboration between stakeholders is important for managing business ethics, as it can

bring to the surface stakeholder demands and interests, and thus gives the company a
greater opportunity to satisfy their stakeholders. But, stakeholder collaboration might
come with some problems:
 Resource intensity (time-consuming)
 Culture clash
 Schizophrenia (“multiple identities” – agree on one issue, but conflict over
another)

lOMoARcPSD|4774703
 Co-ordination (by collaborating with many different partners, not everybody can
be satisfied)
 Co-optation (by involving with business operations, stakeholders might be co-
opted by corporations by embracing a more business-friendly agenda rather than
maintaining independence)
 Accountability (of stakeholder organizations)
 Resistance (organization members or external parties might resist the
development of a collaborative relationship)
Social accounting is the voluntary process concerned with assessing and

communicating organizational activities and impacts on social, ethical, and environmental
issues relevant to stakeholders. (figure 5.3 from the book)
There are both practial and moral reasons to engage in social accounting, but the four
main issues are:
 Internal and external pressure
Pressure from competitiros, governments, shareholders, consumers can provide
incentives to engage in social accounting
 Identifying risks
Social auditing provides organizations with a clearer picture of what is happening
in terms of social, ethical and environmental impacts. This information is critical
for identifying risks and other problems that can harm the business and
stakeholders.
 Improved stakeholder management
Social accounting provides a new channel of communication to stakeholders by
which organizations might seek to improve their reputation
 Enhanced accountability and transparency
Social accounting contributes to a company’s transparency of their social role and
impacts, which ensures that they are answerable for the consequences of their
actions (accountability)
There are 8 issues that assess the quality of social accounting (what is good social
accounting?):
 Inclusivity
 Comparability
 Completeness
 Evolution
 Management policies and systems
 Disclosure
 External vertification
 Continuous improvement
Business Ethics Management can be organized in four ways:

1. Compliance orientation
Preventing, detecting, and punishing violations of the law
2. Values orientation
Defining organizational values and encouraging employees to commit to ethical
aspirations
3. External orientation
Focus on satisfying external stakeholders (e.g. customers or shareholders)
4. Protection orientation
Protects top management from blame for ethical problems or legal violations
Ethical leadership is the role of senior managers in setting the ethical tone of the
organization and fostering ethical behaviour among employees

lOMoARcPSD|4774703
PART B: CONTEXTUALIZING BUSINESS ETHICS
Chapter 6: Shareholders and Business Ethics
Separation of ownership and control in corporations:

 Locus of control: the control is not in the hands of the owner, but in the hands
of the directors
 Fragmented owners: many shareholders
 Divided functions and interests: shareholders and managers don’t always have
the same interests
Managers have the duty to run the company in the interest of shareholders, which brakes
down in three main duties:
 Duty to act for the benefit of the company
 Duty of care and skill
 Duty of diligence (“expected level of active engagement in company affairs”)
Corporate governance = the rules, processes and structures through which

corporations are directed and controlled in the interest of shareholders and other
stakeholders.
 “Principal-agent relationship”
Shankman: in a principal-agent relationship…
(1) there is a conflict of interest
(2) the principal only has limited knowledge and insight
Corporate governance models differ globally, which is summarized in figure 6.2 (see
book)
 Anglo-American model: focuses on the stock market as the central element of the
system of governance. Therefore, corporations have to provide a high degree of
transparency and accoutnability to shareholders and investors.
 Continental Europe model: corporations are embedded in a network of small
number of large investors, among which the bank plays a major role. The central
focus is the long-term preservation of influence and power. Stakeholders other
than shareholders also play an important role
 Asian model: relationship-based approach to corporate governance. The interests
are not predominantly the maximization of shareholder value, but include other
considerations including securing employment, market share, and wider shicoail
interests (education, social security), etc.
There are some ethical issues in corporate governance:

1. Executive accountability = the system and processes through which senior
executives can be held responsible for the performance of the firm by
shareholders and other stakehodlers, typically via the board of directors.
The central ethical issue here is the independence of the supervisory, non-
executive (shareholders) board members. They will only be able to reasonably act
in the principal’s interest if they have no directly conflicting interest. This can be
reached by:
 Non-executive directors should be drawn from outside the corporation
 They should have a personal financial interst in the corporation other than
the interest of the shareholders
 They should be appointed for a limited period (so that they do not get to
close to the company)
 They should be competent to judge the business of the company
 They should have sufficient resources to get information
 They should be appointed independently

lOMoARcPSD|4774703
2. Executive remuneration – executive pay; ever-increasing executive salaries.

Ethical problems unveil with the executive pay in firm-shareholder relations:
 Designing appropriate performance-related pay – share as payment option
to align shareholder and manager interest, but this has resulting in
rocketing salary levels
 Influence of globaliation on executive pay
 The influence of the board tends to be limited and fails to reflect
shareholder interests
3. Mergers and acquisitions comes with ethical issues as well. The main issue is
that managers may pursue interests that are not congruent with the shareholder’s
interests. (study shows only 17% of mergers add value for shareholders). Also,
ethical problems with hostile takeovers, where an investor intends to purchase a
majority stake in a corporation (often secretly) against the wishes of its board. A
third issue is that acquisition of corporations often comes with restructuring and
downsizing
4. The role of fiancial markets and insider trading – there are some ethical
issues concerning the financial market. Shareholders expect a future dividend
and/or rise in share prices, however there is a problem with “information
efficiency” that makes financial trading less fair or unethical. Issues related to this
are:
 Speculative ‘faith stocks’
The speculative nature of share prices comes with risks, especially with
“faith stocks”, which investments were not build on profit calculations, but
only on little more than blind faith. This comes with ethical problems:
1. Many pensioners have lost large parts of their income
2. Stock markets do not always fully reveal the amount of uncertainty
 High-frequency trading
Brokers buy financial assets and only hold them for microseconds to
benefit from minimal changes in the value of the assets before selling
them. Two main problems:
1. Some players in the markets have their information microseconds
before competitors and might thus have an unfair advantage
2. All of those trades are executed through electronic algorithms and since
most actors use very similar algorithms, the risk of market crashes is quite
substantial.
 Insider trading
This is a financial market transaction based on information that is not
publicly available to all other market participants. Executives, and other
insiders, know the company well and might easily know about events that
can have a significant impact on a company’s shares. The ethical
assessment of insider trading tends to rely on one or more of the following
four arguments:
1. Fairness
2. Misappropriation of property
3. Harm to investors and the market
4. Undermining of fiduciary relationship
One of the main institutions to bridge the asymmetric distribution of information between
shareholders and corporate actors is that of fianncial professionals and market
intermediaries. The two single most important types of actors here are: accounting firms
and credit-rating agencies. The task of these organizations is to provide a ‘true and fair
view’ of a company’s financial situation or a judgement of the trustworthiness of an
investment opportunity.
Five main problematic aspects of the financial intermediary’s job:
 Power and influence in markets
Power of CRA to downgrade or upgrade a company’s investment rating, or
government-issued bonds (can result in slow economic growth)

lOMoARcPSD|4774703
 Conflict of interest
CRAs are mostly paid by the issuers of finaical products, who obviously have a
much different interest than the investors regarding the rating they receive (they
want a high rating, but investors want an honest rating)
 Long-term relationships with clients
Financial intermediaries tend to look for long-term relationships, although this is
restricted by the accounting laws of some countries. Next to that, it can threaten
independence.
 Oversight and controls
When a firm such as KPMG or PwC grows, it becomes harder to maintain oversight
and controls over standards of diligence. Thus, there is a distancing effect
between the individual auditor and the companies supervisors.
 Competition between firms
Intensifying competition brings the danger that firms will sacrifice public interest
in the quest to beat the competition (e.g. a CRA will give an extra high rating, as
it knows that the requirer will otherwise go to another company that can give a
better rating)
Private equity (PE) firms and hedge funds (HFs) are rising. PE firms raise money from
investors (institutional and wealthy individuals) so that they can buy a majority stake in
a public company. Then the company is made private and restructured so that the value
of the firm (or parts of the firm) becomes as high as possible. An ethical issue here is
that there is no legal obligation to provide public information and there is a lack of
consideration for other stakeholders. HFs are a form of PE firm. They invest in complex
structured financial products to ‘hedge’ risks from other investment and also do other
types of financial investments.
The ethical issue with HFs is that they are not transparent; they do not disclose their
strategies and do not have to report to regulators. High risks are involved.
Shareholders and globalization

Shareholders are becoming players in the global arena in four different ways:
1. Direct involvement by buying shares of companies in other countries
2. Indirect involvement by buying shares of domestic companies that operate
globally by selling goods and services worldwide
3. Investing in MNEs
4. Direct players by investing in fuds that direct their money to global capital
markets
Global financial markets are the total of all physical and virtual (electronic) places where
financial titles in the broadest sense (capital, shares, currency, options, etc.) are traded
worldwide.
This globalization raises some ethical issues regarding:
 Governance and control
 National security and protectionism
 International speculation (global financial markets encourage speculation, which
may have an influence on real-life situations)
 Unfair competiton with developing countries (speculative moves of capial out of
countries resulting in -developing- countries getting into a financial crisis)
 Space for illegal transactions (e.g. Tax havens such as Luxembourg or the
Cayman Islands)
Reformation worldwide
The Sanenesses-Oxley Act was introduced in the US to improve internal controls and
external reporting. Since there are also foreign countries in the US, it has effects on the
rest of the world as well. In Europe, the reform consists of the definition and
implementation of new corporate governance codes. South Africa has a ‘King Code’,
which serves as template for whole Africa. Codes of corporate governance describe:

lOMoARcPSD|4774703
 Size/structure of the board

 Independence of supervisory/non-executive directors
 How often the supervisory body meets
 Employees’ rights/influence in corporate governance
 Disclosure executive remuneration
 General meeting participation and proxy voting
 Role supervising/auditing bodies
These codes are voluntary, and some have a ‘comply or explain’ rule. European countries
seek a balance between shifting more towards the market-oriented Anglo-American style
and the threats of ‘crowding out’ indigenous corporations.
Islamic finance
The principles of Islamic finance are becoming more popular, because these countries
were way less affected by the financial crisis. Islamic finance is concerned with providing
financial products and services that are sharia compliant. The key differences between
Islamic finance and conventional finance are its:
 Prohibition on charging and paying interest (ribs) in financial transactions;
 Prohibition on uncertain and speculative transactions (gharar);
 Requirement for profit, equity and risk sharing in investments;
 Prohibition on investment in sinful (haram) activities, including pornography,
gambling and alcohol;
 Requirement for all financial products to be backed by a tangible asset (because
money has no value in itself).
Shareholders as citizens of the corporation
Shareholder democracy: is that a shareholder of a company is entitled to have a say in

corporate decsisions. The idea here is that, in comparison with other stakeholders,
shareholder have alegally protected claim on the corporation. A single shareholder’s
influence is rather small; however, with institutional investors, or other large
shareholders, the situation looks considerably different. Still, their influence is
retrospectively. They can approve or disapprove plans, but do not really have an
influence on future plans. Anyway, corporations are accountable to shareholders. The
most important instrument to provide information is the annual report, which often
serves as a basis for the vote at annual general meetings (AGMs). Can shareholders also
be a force for more social accountability and performance? That depends on:
 Scope of activities
 Adequate information
 Mechanism for change
There are two approaches to ‘ethical’ shareholding:

Shareholder activism: the attempt to use shareholder rights to actively change the
practices and policies of a corporation
Socially responsible investment (SRI): an investment decsision that combines both
the search for financial returns with the achievement of social, ethical, and environmental
goals.
Shareholder activism Socially responsible investment

Single-issue focus Multiple-issues focus
Active role in corporate governance Passive role in corporate governance
Seeks engagement with managers Avoids engagement with management
Seeks publicity Avoids publicity
The criteria for jSRI can be negative or positive, i.e. investors can choose to exclude
certain companies with undesired features from their investment (negative screening) or
actively include companie with certain desired features (positive screening). The most
common issues for both criteria are:

lOMoARcPSD|4774703
Negative Positive
 Abortion, birth control  Conservation and environmental
 Alcoholic beverages production protection
 Animal rights violation  Environmental performance
 Child labour  Equal opportunities and ethical
 Companies producing or trading employment practices
with oppressive regimes  Green technologies
 Environmentally hazardous  Inner city renovation and
products community development
 Poor employment practices programmes
 Nuclear power  Public transportation
 Weapons
There are two broad types of SRI funds:

1. Market-led funds: these assess the market and choose the companies to invest
in according to that. Information is gathered from agencies like the Ethical
Investment Research Service (EIRIS).
2. Deliberative funds: they use their own ethical criteria; assess companies
themselves.
So shareholders can influence by choosing where to invest in and setting incentives for
other companies to review their practices and policies. Banks and investors include
ethical criteria more and more. For instance, the International Finance Corporation has
the Safeguard Policies, commercial banks uses the Equator Principles, and the UN
launched the Principles of Responsible Investment. The main issues concerning the SRI
movement:
 Quality of information: provided by companies themselves; no standardized
way of verifying and comparing information.
 Dubious criteria: some funds use specific ideological/political views,
‘irresponsible’ is quite subjective anyway.
 Too inclusive: many companies are in at least one SRI fund, among which
companies like Fanny Mae.
 Strong emphasis on returns: usually financial performance is checked first, and
only then the ethical criteria.
Shareholding for sustainability

Since the late 1990 there have been several attempts to construct share indices that rate
corporations according to their performance towards the broader goal of sustainability:
 Dow Jones Sustainability Indices (DJSI)
 ‘FTSE4Good’ in London – a family of indices that embrace companies that meet
certain social, environmental, and ethical standards
 Indices that focus on particular country markets or different investor interests
 Sustainability indices for particular sectors: “cleantech indices” that include
companies employing clean, environmetally friendly technology solutions
The DJSI follows a ‘best-in-class approach’, comprising those companies identified as the
sustainability leaders in each industry. Companies are assessed in line with general and
industry-specific critera, which are divided into three broader areas:
 Environmental factors: e.g. eco-design, environmental management systems
 Economic factors: e.g. risk management, quality and knowledge manageemnt,
supply-chain management
 Social factors: e.g. employement policies, stakeholder dialogue, human rights
policies, social reporting
Data is gathered from questionnaires, documentation, policies, reports, and public
information. Some criticism on the DJSI:
 Data dependable on data provided by company itself
 Questionable criteria (and industries like tobacco are not excluded)

lOMoARcPSD|4774703
 Focus on management processes (rather than sustainability of company/products)
Ownership models
Alternative ownership models than the shareholder as owner:
 Government ownership (resurfaced again after crisis; because failure would hurt
many people next to shareholders)
 Family ownership (they have longer-term goals)
 Co-operatives (owned and controlled by workers and customers; to meet
retailing/production/buying needs)
Co-operatives are common in collectivist countries like southern Europe (especially Italy).
An example is Mondragon. The contribution of co-operatives strikes:
 Economic sustainability;
 Social sustainability;
 Environmental sustainability.
A more recent innovation in the trend of ownership and governance of firms is social
purpose corporations. This is a type of corporation that is legally required to pursue a
social purpose in addition to its commercial goals. Such firms must do the following:
 Pursue a general public benefit in addition to profit;
 Consider the effect of their decisions on stakeholders, employees, suppliers,
customers, community and environment;
 Produce an annual benefit report detailing their performance in relation to their
proposed public benefit against a third-party standard.
Chapter 7: Employees and Business Ethics
Like shareholders, employees take on a particular role among stakeholders as they are
closely integrated into the firm. They are the most important production factor or
‘resource’ of the corporation.
On the legal level, there is normally some sort of contract between the corporation that
stipulates the rights and duties of both the firm and the employees. Furthermore, there is
a quite extensive network of legislation regarding employee rights (e.g. minimum wage,
working conditions). The economic relationship is characterized by costs to each:
employees invest time and effort in developing assets specific to a particular employer,
and vice versa. Such costs can create a moral hazard, opening up a wide range of
ethical issues.
Ethical issues in the firm-employee relation

Employees are managed by the human resource department. This term is subject to
debates in business ethics, as the Kantian theory requires us to treat humanity ‘always
as an end and never as means only’, but HRM uses employees as resources (i.e. a
mean). The core ethical dilemma in HRM is thus that people in the firm are nothing more
than a resource. This also becomes visible when looking at the gap between the rhetoric
of HRM policies and the reality often hidden behind it:
Rhetoric Reality
“New working patterns” Part-time instead of full-time jobs
“Flexibility” Management can do what it wants
“Empowerment” Making someone else take the risk and
responsibility
“Training and development” Manipulation
“Recognizing the contribution of the Undermining the trade union and
individual” collective bargaining
“Teamworking” Reducing the individual’s discretion

lOMoARcPSD|4774703
According to Kantian thinking, it is humans dignity that forbids treating employees as a

means only, and it is the duty that constitutes the main ethical boundary for the
management of employees. Human beings deserve respects and are entitled to certain
basic rights. The central ethical issues in HRM are therefore framed around:
 Employee rights: entitlements of workers with respect to their employer, based
on a general understanding of human rights and often codified in employment law
 Employee duties: obligations of workers towards their employer, based on
individual contracts and wider employment laws
The most important rights and duties, and the ethical issues involved, are:
Employee rights Issues involved
Right to freedom from discrimination  Equal opportunities
 Affirmative action
 Reverse discrimination
 Sexual and racial harassment
Right to privacy  Health and drug testing
 Electronic privacy and data
protection
Right to due process  Promotion
 Firing
Right to participation and association  Participation in the company’s
decisions
Right to healthy and safe working  Working conditions
conditions  Work-life balance
 Presenteeism
 Occupational health and safety
Right to fair wages  Pay
 New forms of work
Right to freedom of conscience and  Whistleblowing
speeche
Right to work  Non-discriminatory rules of
recruitment
Employee duties Issues involved
Duty to comply with labour contract  Acceptable level of performance
 Work quality
 Loyalty to the firm
Duty to comply with the law  Bribery
Duty to respect the employer’s property  Unauthorized used of company
resources for private purposes
 Fraud, theft
Most of these employee rights are derived from basic human rights, which are enshrined
in the Universal Declaration of Human Rights (UDHR). This is the broadest common
baseline of basic human right, and it is accepted across diverse cultures and religions
worldwide. Therefore, global companies have begun to align their employment policies
more with human rights. These labour standards are also based on the International
Labour Organization (ILO).
Discrimination
Workplace discrimination: when decisions are made on the basis of an enduring
human characteristic, other than merit, that is irrelevant to the effective performance of
the job in question. I.e. when employees receive preferential (or less preferential)
treatments on the grounds of characteristics that are not directly related to their job.
Most common characteristics that are discriminated are: race, gender, age, disability,
and nationality.

lOMoARcPSD|4774703
As employees are increasingly coming from a range of diferent religious, racial, national
and cultural groups, the issue of managing diversity has become a prominent feature of
business management.
Discrimination is a violation of the second principle of Rawl’s theory of justice: “social and
economic inequalities are to be arranged so that they are attached to offices and
positions open to all under conditions of fair equality of opportunity”. There are
inequalities between individuals, but the reason for choosing one person over another
should be based on qualifications that in principle could be fulfilled by anyone. Making
gender or race a criterion for a position would exclude certain people right from the start,
and thus would be an act of discrimination. In many countries this is also illegal.
Issues of disability are unique issues, in that the physical enviornment and systems of
the company itself might prove to be discriminatory for disabled employees. In the case
of age discrimination, workers both old and young have suffered.
Another unsolved issue is gender discrimination: women still, on average, receive lower
wages for the same job as their male equivalents. Women are aslo still under-
represented in top management positions, dispite often outperforming men
educationally.
Institutional discrimination: that the very culture of the organization is prejudiced against
certain groups.
Sexual and racial harassment

In the case of sexual harassment, a problem might be that certain sexual favours are
requested for poromotion or other rewards that would normally be a result of successful
work. ‘Mild’ forms of harassment would be jokes or comments about a person’s gender,
race, sexual orientation, etc., that could lead to significant effects on working relations.
Harassment is difficult to detect and prevent, mainly because the line between
harassment on the one hand and ‘office romance’, ‘joking’, or other forms of personal
interaction are blurred. Factors such as culture, context, timing and frequeny all might
shape whether a particular set of behaviours are viewed as harassment or acceptable
workplace interaction.
Equal opportunities and affirmative action

How should discrimination be tackled? Many companies have sought to do this through
the introduction of so-called equal opportunity or affirmative action programmes. These
programmes establish policies and prcedures that aim to avoid discrimination, and may
even go so far as to attempt to redress inequity in the workforce.
Two types:
 Equal opportunity programme: mainly involve the introduction of procedures
that ensure that employees and prosprective employees are dealt with equally
and fairly. For example: advertise jobs in such a way that all potential applicants
can apply, and certain nationalities, genders, ages are not withold from this.
 Affirmative action programmes: tend to target those who might currently be
underrepresented in the workforce, for instance by trying to increase the
proportion of women, disabled or racial minorities in senior management
positions. Example: RUG recruiting more female professors. There are four main
areas of affirmative action:
o Recruitment policies. AA programmes might look at actively recruiting
the under-represented groups, for example by targeting them in job ads.
o Fair job criteria. Job criteria are sometimes defined so that they
automatically make the job beyond the reach of a great number of
potential applicants. For example: inflexibility in employees’ working times
can discriminate against women with children, as they are most likely to
take on childcare.
o Training programmes for discriminated minorities. Sometimes, jobs
include certain special skills, qualifications and experience that particular

lOMoARcPSD|4774703
under-represented groups are unlikely to have. This might be because of

earlier discrimination, historical or cultural precedents, or their socio-
economic situation. Targeted pre-recruitment training programmes can
boost their eligibility for vacant positions
o Promotion to senior positions. Women are often underrepresented on
boards of directors. This can be improved by promoting them, for example:
Deloitte ooperating a ‘Mass Career Customization’ program that targets
women to deal with work-life balance issues that are normally the biggest
obstacle to progress up the ranks of seniority.
Reverse discrimination
In many cases, AA programmes do not simply intend to provide equal opportunities for
underrepresented groups, but focus more on the correcting of past injustices. Example:
Blac Economic Empowerment (BEE) laws in South Africa that seek to install a fairer
representation of black workers after apartheid. However, one side effect is that at some
point AA can itseself be discriminatory because it disadvantages thoe thought to be
already in the advantaged position. This situation is taken a step further if minorities are
preferred to mainstream candidates when the minority candidate is less qualified for the
job. In these cases, non-minorities suffer reverse discrimination exactly because AA
policies prefer certain minorities.
The justification of reverse discrimination is somewhat ambiguous:
 Retributive justice says: women or ethnic minorities have been discriminated
against for such a long time and that they are so badly under-represented that it
is time to reverse this development. I.e. the past injustices have to be ‘paid for’
 On the other hand: the individual applicant is not responsible for the misconduct
of his race or gender on previous occasions and should not be made resonsible for
the discrimination
 Distributive justice says: rewards such as job and pay should be allocated fairly
among all groups
 Opponents of reverse discrimination say: discrimination is not wrong per se and
that procedural justice should be paramount; promoting someone on basis of
gender rather than qualities can harm business efficiency; decisions made on
basis of race, gender promotes stereotyping
Addressing discrimination has become a key new area of management, which
increasingly is referred to as managing diversity.
Employee privacy
Employee privacy: an individual employee’s ability to control information about
themselves, and the circumstances under which that information is shared inside and
outside the worklplace.
This has become an increasing issue in the workplace. The escalation in health, drug and
alcohol testing of employees, coupled with the possibilities for more and better
surveillance through advances ininformation and communication technologoies has never
been so much under threat.
According to Simms, there are four different types of privacy that we might want to
protect:
 Physical privacy: e.g. surveillance cameras in employees’ private rest areas
 Social privacy: freedom to behave in our private life in whichever way we
choose; employers will threaten this by saying that employees cannot behave in
an unacceptable or immoral or illegal way.
 Informational privacy: determining how, when and to what extent private data
bout us are released to others. E.g. monitoring employees’ social media account
 Psychological privacy: controlling emotional and cognitive inputs and outputs,
and not being compelled to share private thoughts and feelings. E.g. workers that
have to smile to customers.

lOMoARcPSD|4774703
Health and drug testing is an issue in business ethics: it makes available far more
information on the employee than the employer actually needs. Three main aspects:
 Potential to do harm
 Causes of employee’s performance
 Level of performance
Due process and lay-offs

Due process: a form of justice that requires the application of rules and procedures to
people in a consistent and even-handed way, avoiding arbitrary decision-making, and
without discrimination on bases other than merit. Promotion, disciplinary proceedings,
and firing are the most common proesses where the right to due process is particularly
important.
Ethical considerations in the process of downsizing:
 Involvement: employees have a right to know well ahead that their job is on the
line
 Renumeration: the compensation package of redundancy and other benefits
employees receive when laid off. This should at least be enough to bridge the time
necessary for finding a new job.
Occupational transitions: having to find work in completely new industries rather than
just switching employers. This has increased due to increasing moves towards
restructuring.
Employee participation
Employee participation: practices that give employees some influence in how the
workplace is organized, managed, and governed. Ethical justifications for this are:
 Kant thinking: people are not only treated as means, but as ends also
 Egoism: an employee can only freely pursue their own interest or desires with
some degree of participation in the workplace
The key issue is to what degree this participation should take place. Two main areas to
which a right to participation extends:
 Financial participation – allows employees a share in the ownership or income of
the corporation.
 Operational participation – more practical, four dimensions:
o Delegation: employees can be delegated control over a range of decisions
relevant to their jobs
o Information: employees can also participate by receiving information
about crucial decisions that have an effect on their work
o Consultation: employees may have the opportunity to express their views
on potential decisions
o Co-determination: here employees have a full and codified right to
determine major decisions in the company
Working conditions
The right to healthy and safe working conditoins has been one of the very first ethical
concerns for employees, right from the early part of the industrial revolution.
The main issue often becomes the enforcement and implementation of existing
regulation. Some companies may cut corners on this, or some rules may be disliked by
workers themselves (e.g. wearing a helmet). Also an issue in developing countries, as
the laws on working conditions are not that well-developed, resulting in MNEs not being
forced to set standards.
Principle of informed consent: no worker should be exposed to risks without precise
information about what tose risks actually are.
Also, problems with new diseases and new technologies. Example: asbestos

lOMoARcPSD|4774703
Work-life balance
Work-life balance: an employee’s preferred ratio between work-related and non-work
related activities.
Growing pressure for longer hours in the workplace. This comes with issues. Example:
parents facing difficulty with childcare; no time left for social relationships.
Two main issues in work life balance are:
 Excessive working hours and presenteeism
o Presenteeism: the phenomenon of being at work when you should be at
home due to illness or even just at rest and recreation
 Flexible working patterns
o Managers can do what it wants
o More part-time work, temporary work, self-employment  legal status is
less secure
Fair wages
 Fair wages are mainly complex when we compare wage levels of those at the
bottom with those at the top
 Expectations + performance  fair wages
o But jobs are valued differently among cultures and even individuals
 “Living wage”: in some countries, the minimum wage is not enough to be able to
live a normal life (example: Cambodia)
 Widening attention to “income inequality”
 Cuts in employees benefits (health insurances and pension plans)
Employing people worldwide: the ethical challenges of globalization

Globalization has had a significant impact on the question of the ethical treatment of
employees. Many companies operate subsidiaries or source product from ‘low-wage’
countries in the developing world. This is accompanied by questioned working conditions:
low wages, high risks for health and safety, inhumane working conditions. Some of the
underlying issues involved here are:
 National culture and moral values
Different cultures will view employee rights and responsibilities differently.
Managers dealing with employees overseas, need to first understand the cultural
basis of morality in that country. But, then this begs the question as to whether it
is fair to treat people differently: “Do Vietnamese employees not have the same
needs for health protection as workers in Venice?”. This raises the problem of
relativism vs absolutism
o Relativists: dismisses the necessity for moral judgement from the West
about foreign cultural context  if working 14 hours a day is normal in the
Pakistani culture, then who are we to judge by imposing Western
standards?
Relativism would deny any ethical problem around exploitation and poor
working conditions, as long as such conditions comply with the standards
of the respective country or culture
o Absolutusts: if our moral standards are right, they are right everywhere
around the globe. Thus, companies should respect employee rights
equally, wherever it is that they are contracted to work.
 The race to the bottom
MNEs are the most powerful actors in such countries, as they are also in a position
to assume a key role in building up so-called ‘background institutions’: trade
unions, health and safety standards, and other rules.
 Migrant labour and illegal immigration
Ethical issues involved:
o Migrant workers are from poor countries, resulting in them willing to
accept working conditions and salary levels that would normally be
considered unacceptable

lOMoARcPSD|4774703
o Businesses often rely on migrant workers, but they are often here illegally
o Migrant workers are more vulnerable to exploitation and they might end up
in working conditions that is equal to modern-day slavery
The corporate citizen and employee relations

If we view the employee as corporate citizen, the corporations should govern their civil
rights. The extent to which corporations take over this role varies across the world. The
first reason for this is the law. Some laws require companies to do more than others. In
Europe, there are most regulations, in the Anglo-Saxon there are less; there are more
institutions to take care of employees. Co-determination says that employees (providers
of labour) and shareholders (providers of capital) have an equal say in government of the
company. It is common in Europe. In the Anglo-American area, shareholders are
considered most important. Employee protection is of a quite low level in developing
countries, but the further they develop the more the regulations are strengthened.
Ruggie (UN representative) developed a framework to understand business
responsibilities concerning human rights:
 Protect: states should protect human rights even if their companies operate in
another country.
 Respect: corporations have to obey human rights laws, even if not enforced, and
should follow general principles of human rights.
 Remedy: both governments and firms should investigate and punish abuses of
human rights.
Towards sustainable employment

There is always a trade-off between employee protection and promotion of sustainability.
For instance, expansion of the airline industry is good for job creation but bad for the
environment.We can contribute to long-term sustainability in three ways:
 Economically: if we are gainfully employed in useful work and feel respected
 Socially: if we are treated in such a way that we can stabilize and maintain social
relationships
 Ecologically: if material and energy are efficiently used (also the potential
workforce)
Three main ways in which these problems and tensions have been addressed:
 Re-humanized workplaces: from mass production to smaller-scale units where
workers can perform more creative and meaningful work
 Wider employment: initiatives to employ more people include shortening the
work week or reduce working time for all workers
 Green jobs: both the industry and the way labour is organized should become
more environmentally sustainable. Solutions include car pooling,
videoconferencing, recycling, and teleworking. Teleworking brings social benefits
(more time for the family), economic benefits (less travel costs) and ecological
benefits (less resources used – no need to travel by car, train, etc.)
Chapter 8: Consumers and Business Ethics
Consumer rights: inalienable entitlements to fair treatment when entering into

exchanges with sellers.
The consumer rights rest upon the assumption that consumer dignity should be
respected, and that sellers have a duty to treat customers as ends in themselves, and
not only as means to the end of the seller.
Caveat emptor: literally means ‘buyer beware’. Under caveat emptor, the consumer’s
sole right was to veto purchase and decide not to purchase something. The burden for
protecting the consumer’s interest therefore lay with the onsumer, not with the party
making the sale. So, it was the consumer’s responsibility to show due diligence in

lOMoARcPSD|4774703
avoiding questionable products. If they were harmed or dissatisfied with a product or

service, it was regarded as their own fault.
Limits of caveat emptor

During the latter part of the twentieth century, the notion of caveat emptor was gradually
eroded by changing societal expectations and the introduction of consumer protection
laws in most developed countries. This led to the introduction and production of various
consumer rights. For example, the UN Guidelines on Consumer Protection tackles several
objectives and principles regarding customer protection:
Objectives
a) To assist countries in achieving or maintaining adequate protection for their
population as consumers
b) To facilitate production and distribution patterns resonsive to the needs and
desires of consumers
c) To encourage high levels of ethical conduct for those enaged in the production
and distribution of goods and services to consumers
d) To assist countries in curbing abusive business practices by all enterprises at
the national and international levels which adversely affect consumers
e) To facilitate the development of independent consumer groups
f) To further international cooperation in the field of consumer protection
g) To encourage the development of market conditions which provide consumers
with greater choice at lower prices
h) To promote sustainable consumption
Principles
a) The protection of consumers from hazards to their health and safety
b) The promotion and protection of the economic interests of consumers
c) Access of consumers to adequate information to enable them to make informed
choices according to individual wishes and needs
d) Consumer eductions, including education on the environmental, social and
economical impacts of consumer choice
e) Availability of effective consumer redress
f) Freedom to form consumer or other relevant groups or organization and the
opportunity of such organizations to present their views in decision-making
processes affecting them
g) The promotion of sustainable consumption patterns
The stake consumers hold in corporations does not only provide them with certain rights,
but also entrusts them with certain responsibilities. First, we expect them to act ethically
in dealing with the producers and products. Also, consumers have certain responsibilities
for controlling corporations in some way, or for avoiding environmental problems,
through purchase decisions.
Ethical issues, marketing, and the consumer

The qustion of dealing ethically with consumers generally fall within one of the three
main areas of marketing activitiy:
Areas of Some common Main rights involved
marketing ethical problems
Marketing Product policy Product safety Right to safe and
management efficacous products
Marketing Deception Right to honest and
communications Misleading claims fair communicatins
Intrusiveness Right to privacy
Promotion of
materialism
Reinforcing
stereotypes
Pricing Excessive pricing Right to fair prices
Price fixing

lOMoARcPSD|4774703
Predatory pricing
Deceptive pricing
Distribution Buyer-seller Right to engage in
relationships markets
Gifts and bribes Right to free choice
Marketing strategy Targeting vulnerable Right to be free from
consumers discrimination
Consumer exlusion Right to basic
freedoms
Market research Privacy issues Right to privacy
Ethical issues in product policy

At the most basic level, consumers have a right to products and services that are safe,
efficacious and fit for the purpose for which they are intended. The questions that arise
are:
 What lengths should the producers of goods and services go to in order to make
them safe for the consumer’s use?
 To what extent are producers responsible for the consequences of the consumer’s
use of their products?
Manufacturers should exercise due care in ensuring that all reasonable steps are taken to
ensure that their products are free from defects and safe to use. But, of course, safety is
also a function of the consumer and their actions and precausions (example: not acting
hazardously).
Ethical issues in marketing communications

Ethical issues arise in advertising, personal selling, sales promotion, direct marketing,
public relations, and other means of communicating to consumers. There are two types
of criticism: individual and social.
Individual critics are mainly concerned with the use of misleading or deceptive practices
that seek to create false beliefs about products or companies in the consumer’s mind. At
the social level, the main concern is with the aggregate social and cultural impacs of
marketing communications on everyday life, especially in promoting materialism and
reifying consumption.
It is important to recognize that pursuation is not inherently wrong in itself (example:
lecurer makes you read this book for the exam). The problem comes when persuation
involves deception of some sort.
Consumer deception: when a marketing comunication either creates, or takes
advantage of, a false belief that substantially interferes with rational consumer decision-
making. However, depection is not just about telling lies, or just about verbal claims.
Consumers can also be deceived by advertisements that appear to intimate that using a
certain product will make them more attractive, popular or successful. Example: L’Oréal
that states to make your skin look young again. This particularly becomes a problem if it
infringes a consumer’s right to make independent decisions free from undue influence or
coercion.
The UK self-regulatory body, the Advertising Standards Authority (ASA), suggests that
advertisements should be ‘legal, decent, honest and truthful’ in that they:
 Must not contain anything that is likely to cause serious or widespread offence
 Must not cause fear or distress without justifiable reason
 Must contain nothing that is likely to condone or encourage violence or antisocial
behaviour
 Must not condone or encourage an unsafe practice
 Must not encourage consumers to drink and drive
The argument about social and cultural impacts also concerns the aggregate impact of
marketing communications in society rather than just being specifically focused on

lOMoARcPSD|4774703
particular campaigns or techniques. The main objections appear to be that marketing

communications:
 Are intrusive and unavoidable
We are exposed to many adverts every day, and they are everywhere (TV,
billboards, radio, newspapers, internet, stores, on the sides of buses, etc.)
 Create artificial wants
Advertising makes us want things that we do not particularly need.
 Reinforce consumerism and materialism
Marketing communications generate and perpetuate an ideology of materialism in
society, and to institute in our culture an identification of consumption with
happiness.
Consumerism: an attitude that makes consumption the centre of meaning and
identity construction
 Create insecurity and perpetual dissatisfaction
Marketing communications can create dissatisfaction with our lives and can
institute a sense of insecurity and inadequacy. For example: your mobile phone
not being good enough, your coffee brand being ‘too’ cheap, etc.
 Perpetuate social stereotypes
Marketing communications might spread certain stereotypes, such as: women
being housewives; health, beauty and happiness are only possible with ‘perfect’
body shapes; etc.
Ethical issues in pricing

Pricing issues are central to the notion of a fair exchange between the two partie, and the
right to a fair price is one of the key rights of consumers as stakeholders. Problems of
fairness arise when market conditions allow companies to exploit an advantageous
market position, such as a monopoly, or where consumers are unable to leave the
market, perhaps because they have an irrevocable need for a product, such as housing,
food or medicine.
There are four main types of pricing practices where ethical problems are likely to arise:
 Excessive pricing: when the fair price of a good or service has been exceeded
 Price fixing: when competing firms collude to fix prices above the market rate
 Predatory pricing: when a firm sets a price significantly below the market rate
in order to force out competition. This allows firms with a size to use their power
to eliminate competitors so that more favourable market conditions can be
exploited.
 Deceptive pricing: when firms price in such a way that the true cost to
consumers is deliberately obscured. For example: airline companies advertising
certain prices for flights that are not actually available (or using a high amount of
additional taxes and fees to still make the flight price much higher)
Ethical issues in channels of distribution

Ethical issues and problems that occur in the relationships between manufacturers and
the firms that deliver their products to the market, such as wholesalers, logistics firms,
and retailers (product supply chain).
Ethical issues in marketing strategy

Marketing strategy can leadto two types of violations of the consumer’s right to fair
treatment:
 Consumer vulnerability: the state of being unable to make an informed,
reasoned decision about a product purchase. Examples: children, elderly, or the
sick.
 Consumer exclusion: certain groups of consumers may be discriminated against
and excluded from being able to gain access to products that are necessary for
them to achiev a reasonable quality of life
Targeting vulnerable consumers

lOMoARcPSD|4774703
There are a number of reasons why consumers might be vulnerable, such as because
they:
 Lack sufficient education or information to use products safely or to fully
understand the consequences of their actions
 Are easily confused or manipulated due to old age or senility
 Are in exceptional physical or emotional need due to illness, bereavement, or
some other unfortunate circumstance
 Lack the necessary income to competently maintain a reasonable quality for life
for themselves and their dependants
 Are too young to make competent independent decisions
Example: targeting young children for toys, even though they cannot make a reasonable
decision themselves.
It is also important to take into account the perceived harmfulness of the product. For
example: cigarettes and alcohol are clearly harmful, but toys for children are not. So, is it
really wrong to target children with a product that is perfectly fine?
Consumer exclusion
As Kempson and Whyley show, exclusion can take a variety of forms, including:
 Access exclusion – people not being able to access the product
 Condition exclusion – certain conditions of the product may prevent groups
from being qualified for purchasing them
 Price exclusion – when the price of a product is too high for certain consumer
groups
 Marketing exclusion – when firms exclude certain groups from their target
marketing and sales activities
 Self-exclusion – when people themselves beliefe that they would be refused to
apply for a product
Ethical issues in market research

The main issue here is the possible threats to rights of consumer privacy: the right of a
consumer to control what information companies can collect about them and how it is
stored, used, and shared.
Most of the issues of consumer privacy are related to dangers posed by digital data,
social media, and online privacy.
The ethical challenges of the global market place

Convergence in consumer needs across different countries has been widely identified as
one of the key drivers of globalization in business. Broadly speaking, there are three
main considerations:
 Different standards of consumer protection
The level of protection offered to consumers varies considerably across the globe,
in terms of both government regulation and the standards offered by companies
 Exporting consumerism and cultural homogenization
Companies are not only exporting products, but also exporting a whole set of
cultural values. This contributes to the erosion of local cultures and the expansion
of cultural homogenization
 The role of markets in addressing poverty and development
Globalization rises the prospect of firms targeting their products ata much wider,
but far poer, market of low-income consumers in developing countries.
Prahalad: multinationals tap into the ‘fortune at the bottom of the pyramid’ – by
stimulating commerce and development at the bottom of the economic pyramid,
MNEs could radically improve the lives of billions of people and bring them into
being a more stable, less dangerous world.
Consumers and corporate citizenship

lOMoARcPSD|4774703
Consumer sovereignity: suggests that under perfect competition, consumers drive the
markets; they express their needs and desires as demand, which firms respond to by
supplying them with the goods and services that they require. This gives the idea that
consumers are sovereign in the market.
Real markets, however, are rarely characterized by perfect competition: these limitations
are an ethical proglem on two counts. First, it may well mean that individual transactions
will be unfair in some way to certain consumers. And secondly, without consumer
sovreignty, the economic system itself does not work efficiently and allocate resources
fairly.
Consumer sovereigny shifts the balance of power away from the business and towards
the consumer. According to Smith, this consumer sovereignty is comprised of three
factors:
 Consumer capability
 Information
 Choice
This is further explained in the table on the next page:
Dimension Definition Sample criteria for
establishing adequacy
Consumer capability Freedom from limitations in Vunerability factors, e.g.
rational decision-making age, education and health
Information Abailability and quality of Quantity, comparability
relevant data and complexity of
information; degree of bias
or deception
Choice Opportunity for switching Number of competitors and
level of competition;
switching costs
Ethical consumption: the conscious and deliberate choice to base consumption choices
on personal moral beliefs and values. This includes boycotting certain companies in
response to a poor social, ethical, or environmental record, bying non-animal-tested
products, avoiding products made by sweatshop or child labour, choosing fair trade or
organic products, reusing or recycling products, etc.
Ethical consumers have been increasingly seen as playing an important role in prompting
businesses to address ethics more enthusiastically. As such, firms can adopt either an
ethical niche orientation or a mainstream orientation in the ethical market. While the
former is concerned with offering specialist ethical product to a committed minority, the
latter involves firms integrating ethical considerations into product offerings for broader
market segments.
If we draw the connection with consumer sovereignty, we see that consumers to some
extent can act as a social control on business. If consumers demand improved business
ethics throughthe market, then business might be expected to listen and respond. Hence,
the consumer is effectively using their purchases as ‘votes’ to support or criticize certain
business practices. Dickinson and Carsky refer to this as consumer citizenship.
However, there are a few downsides to ethical consumption:

 The motives of corporations will always be primarily financial rather than moral.
Hence, their attention to social concerns will always be driven by market appeal.
Minority interest or unattractive causes are likely to be ignored or pushed aside
 Market choices are predicated on an ability and willingness to pay. If consumers
decide that they no longer want to pay extra for ethical ‘accessories’, or if they
can no longer afford them, will they just be dropped?
 If purchases are ‘votes’, then the rich get far more voting power than the poor.
The market is hardl democratic in the same way that elections are.
Sustainable consumption

lOMoARcPSD|4774703
Sustainable consumption: consumer behaviour that enhances quality of life and

minimizes or eliminates social and environmental harms throughout a product’s life cycle.
A move towards more sustainable consumption needs to be seen in the light of changes
in the ethics governing our societies (Buchholz):
Ethic Imposes limits to Promotes
Protestant ethic Consumption Investment in productive
capacity
Consumerism ethic Saving Instant gratification and
consumption
Environmental ethic Consumption Alternative meanings of
growth and investment in
the environment
To move towards sustainability, Buchholz suggests, we need a new environmental ethic
that provides moral limis to consumption. Of course, reducing consumption is
problematic, both politically and practically, for it also has serious implications for
employment, income, investment and other aspects crucial to economic well-being and
growth. Ultimately then, the real challenge of sustainable consumption is to introduce
alternative meanings of growth into society so that we can learn to cultivate deper non-
material sources of fulfilment.
Steps towards sustainable consumption are:

 Producing environmentally responsible products
 Product recapture
o minimize ‘waste’ by recycling, refurbishing, or re-manufacturing
o From a linear to a circular flow of resources (see figure in book)
 Service replacements for products
 Product sharing
o sharing economy: an economic system built around the sharing of
human and physical resources
 Reducing demand
Chapter 9: Suppliers, Competitors, and Business Ethics
Suppliers and competitors as stakeholders

Remember that a stakeholder is an individual or a group that is ‘harmed by or benefits
from the corporation or whose rights can be violated or have to be respected by the
corporation’. So suppliers clearly are stakeholders. They are mutually dependent but that
does not mean that their interests are the same. Competitors are often not seen as
stakeholders. However, competitors have legal rights that other organizations must
respect, for instance the right to freely enter or leave the market and to set the prices
they want. We can also add the moral right of fair play. Competitors can be harmed by or
benefit from the organization, which is part of the stakeholder definition. We should see
firms as part of an industrial network rather than isolated players.
Industrial network: a group of businesses bound by mutual interests and interlinked
flows of resources and rewards. The way a firm treats another firm also affects others in
the market, which can cause ethical problems.
Ethical issues surrounding suppliers

There has been a change from traditional relationships with suppliers (short-term,
transactional) to approaches that are more based on partnerships (long-term, based on
trust and collaboration). Still, ethical problems arise in such partnerships:
Misuse of power
Relative power can be assessed using resource dependence theory. According to this
theory, power derives from the degree of dependence that each actor has on the other’s
resources. This dependence is a function of how scarce an organization’s resources are -

lOMoARcPSD|4774703
i.e. the level of resource scarity – and how useful they are to the other party -i.e. the
resource utility.
Therefore, the buyer is likely to be able to wield power over the supplier when:
 The supplier’s resources are relatively plentiful and not highly important to the
buyer and/or
 The buyer’s resoures are relatively scarce and highly important to the supplier.
Deontological perspective: those with power might be said to have a duty not to abuse it
Consequentialist perspective: the problems caused by abuse of supply-chain power are
not just of consequence to the weaker partner.
Why does abuse of power happen then? Jones and Pollitt suggest that:
 In the short term, there may well be profit advantages to be gained by exercising
excess power.
 Many firms will view the situation from a relatively narrow perspective and fail to
see the broader cumulative industry effects that may ultimately harm them
Question of loyalty
Loyalty to suppliers sometimes clashes with the economic view of the firm. However,
loyalty does not mean accepting everything, it is just establishing long-term, mutually
beneficial outcomes. A benefit includes less switching and transaction costs and better
ways of collaboration.
Conflicts of interest
Conflict of interest: wehre a person’s or organization’s obligation to act in the interest
of another is interfered with by a competing interest that may obstruct the fulfilment of
that obligation. I.e. it: occurs when someone ‘has a private or personal interest
suffieicnet to appear to influence the objective exercies of their official duties, e.g. as a
public official, employee or professional’
In a business-to-business context, conflict of interests arise in two main ways:
 Conflict of professional and organizational interests
 Conflict of personal and organizational interests
The types of personal, professional, and organizational interests that tend to garner most
attention are those involving money, gifts, hospitality, favours, and any other kinds of
financial inducements. However, it is not always easy to distinguish between a friendly
gift and an outright bribe.
Distinguishing personal inducements

Gifts, bribes, and hospitality: these are official and unofficial ‘perks’ that purchasing staff
might be offered. Some of these might be innocent. Some, however, will simply be
inducement to get business that would not otherwise have earned by more legitimate
means. The key issue here is that gifts and hospitalit often involve staff in a conflict of
interest between their own personal gain and the best interest of the firm.
Things that have to be taken into account are:
 The intention of the gift-giver
 The impact on the receiver
 The perception of other parties
Ethics in negotiation
There are ten popular negotiating tactics, all of which they contend to be challenged on
ethical grounds
 Lies
 Puffery – exaggerating the value of something
 Deception – including misleading promises or threats and misstatement of facts
 Weakening the opponent – undermining the strength or alliances of the opponent
 Strenthening one’s own position – e.g. by means not available to opponent
 Non-disclosure – witholding information that would benefit the opponent

lOMoARcPSD|4774703
 Information exploitation – misusing information provided by the opponent

 Change of mind
 Distraction – attempting to lure opponents into ignoring information or
alternatives that might benefit them
 Maximization – exploiting a situation at one’s own fullest possible benefit
Such practices can incur costs on the negotiator. Specifically, these costs are:
 Rigid negotiating: only using a few tactics that you find good ones
 Damaged relationships: unethical negotiations may result in enemies
 Sullied reputation
 Lost opportunities: for instance progressive discussions that could provide new,
profitable opportunities
Ethical issues and competitors
Competing is not unethical in itself since it is necessary to benefit consumers and other
stakeholders. But ethical issues can result from two distinct problems:
 overly aggressive competition
 insufficient competition
Overly aggressive competition

Here, competitors are harmed in an unethical way. A company goes beyond acceptable
behaviour in direct relationship with a competitor. There are three ways:
 Intelligence gathering and industrial espionage
 Dirty tricks
 Anticompetitive behaviour
Intelligence gathering and industrial espionage

Gathering information is unethical if the tactics used are unethical, the nature of
information is private, or the purposes are against the public interest, although there are
always grey areas. The golden rule can be used (do not do to others what you do not
want them to do to you). Also the universal principle applies because if those practices
are generally accepted the industry suffers from a loss of trust and firms have to use
resources to protect themselves. The privacy of corporations is harder to define since
they have few boundaries, they deal with multiple individuals, and much of their activity
takes place in (quasi-)public space. However, we can argue that the important
information is intellectual property and thus protected. Spying can be used against the
public interest, for instance if its purpose is anti-competitive behaviour. Consequentialists
would say that the result will be an overall aggregate reduction in happiness for the ones
involved.
Dirty tricks
A more generic term used to describe the range of morally dubious practices that
competitors occasionaly turn to in order to outdo their rivals. In addition to industrial
espionage, dirty trics can include:
 Negative advertising: publicly criticizing a company’s competitors
 Stealing customers: rival’s customers are specifically approached
 Predatory pricing: deliberate setting prices below costs
 Sabotage: can also include malware to sabotage computer systems, is a direct
interference in a competitor’s business in order to obstruct, slow down or derail
their plans.
Anticompetitive behaviour
Anticompetitive practices usually contravene competition law, which is in place to ensure
fair competition and protect consumers and other firms from monopolistic behaviour.
Example: Intel was handed a record fine for more than €1 billion by the EC for offering
hidden rebates to retailers if they sold only Intel products.
Anticompetitive behaviour mainly takes place by misabusing one’s dominant position,
just like Intel did (it ‘posessed’ 80% of the market)

lOMoARcPSD|4774703
Problems of insufficient competition

Sometimes, ethical problems arise when competition is reduced by rivals being
insufficiently competitive with each other. This can be done via collusion and cartels, that
fix prices and other trading arrangements for their own mutual benefit.
Globalization, suppliers and competitors: the ethical challenges of global

business networks
Key forces that drive globalization in businesses:
 Convergence of markets
 Global competition
 Cost advantages
 Government influence
This global business network brings to the fore four main considerations:
 Different ways of doing business
 Impacts on indigenous businesses
 Differing labour and environmental standards
 Extended chain of responsibility
Different ways of doing business

The issue here for competitors is that intellectual property may not be respected the
same way. For suppliers there are more issues, concerning gift giving, bribery, and
corruption. In China it is desirable to give and accept favours and gifts under the practice
of guanxi (‘a system of personal connection that carry long-term social obligations’). We
discussed how to evaluate a gift the previous page. Bribery is more common in
construction, real estate, and public works. The likeness of countries to bribe is shown on
page 410. Some argue that if bribery is normal in the country, then we should adapt to it
(just as with giving gifts). But that it is normal does not mean that it is right. The OECD
has the Anti-Bribery Convention but enforcement remains difficult. Often it is not the
question whether bribery is right or wrong, but whether it is possible to do without.
Impacts on indigenous businesses

Harm can result from strong competition and offering employment alternatives for ones
who would otherwise found their own business. It can also be a force for improvement
and an opportunity to collaborate. In becomes unfair when the viability of an entire local
industry is in danger.
Differing labour and environmental standards

The issues are pay, child labour, working conditions, freedom of association, abolition of
forced labour, equality, etc. (the broader ones added by the International Labour
Organization). Often, environmental standards from the home country are avoided
through exporting waste to developing countries that do not have such regulations. That
is sometimes illegal but it still happens a lot.
Extended chain of responsibility

There is no global government, so the responsibilities of corporations grow, also because
there are more and more pressure groups.
The corporate citizen in business-to-business relationships: ethical sourcing and

fair trade
We already mentioned that firms start to take over government’s role, especially
concerning control and regulation of other businesses. The supply chain is the best
example; the process is called ethical sourcing.
Ethical sourcing
Ethical sourcing: the inclusion of explicit social, ethical, and/or environmental criteria
into supply chain management policies, procedures, and programmes.

lOMoARcPSD|4774703
Such pressure from the buyer to the supplier turns out to work; suppliers try to get some
environmental or social certification such as the environmental quality standard ISO
12001, the staff training and development award, and Investors in People. The
relationship between the purchaser and the supplier determines whether the supplier is
willing to take on such initiatives; the more dependent they are the higher the
willingness. If suppliers do so, they reduce the information asymmetries that exist
between them and their buyers.
Where governmental regulations do not exist or are not enforced, ethical sourcing can
take over that role. It works even better if competitors establish guidelines together so
that it becomes even more difficult to not comply for the suppliers. Then, the whole
supply chain becomes involved because the suppliers also involve their suppliers
etcetera; a multiplier effect will be activated.
Strategies of business-to-business regulation

There are three main ways in which firms can effect ethical sourcing through the supply
chain:
 Compliance: setting clear standards for suppliers, coupled with a means for
assessing compliance with those standards.
 Collaboration: also involves getting standards and compliance procedures, but
tends to rely on longer-term ‘aims’, together with incremental ‘targets’, in order to
foster a step-by-step approach to improving standards.
 Development: there is focus on ensuring that workers understand their rights
and are provided with training to improve their capabilities and future prospects.
Fair trade
Fair trade: a system of exchange based on guaranteeing producers in development
countries a living wage, decent working conditions, and opportunities for community
development.
This is initiated by alternative and charitable organizations, nowadays also be found in
supermarkets etc. Commercialization might pressure the ethical standards. The most
important question is whether the continued success of fair trade is providing a positive
force for change for the growers it is intended to help.
Sustainability and business relationships: towards industrial ecosystems?

There are three key levels in the corporation’s relationships with other companies in the
context of sustainability:
 Sustaining the supply chain:
Fair-trade standards say that traders must:
o Ensure the guaranteed minimum price
o Pay a premium for development
o Provide pre-financing for those who need it
o Set minimum progressive criteria for social and economic fairness and
environmental responsibility
 Turning supply chains into supply loops:
I.e.a circular flow instead of a linear flow. Hence, a circular economy is created:
a way of organizing economic activity, based on returning all resources involved in
the productions of goods and services back into productive use with the goal of
eliminating waste and reducing material inputs. Two criteria:
o Collect end-of-life products for economic value recovery.
o The recovery provides for secondary resources so that primary resources
have to be used less or preferably not at all (then it is a closed-loop
supply-chain)
 Industrial ecosystems:
Rather than viewing a firm as a single entity, we can also see firms as wider
communities of organizations that are interdependent because of all kinds of

lOMoARcPSD|4774703
resources (and wastes); these are industrial ecosystems. They use each other’s
waste and by-products to minimize the use of natural resources.

Book Summary EIB (Crane & Matten CH 1-9) Book Summary EIB (Crane & Matten CH 1-9)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Book Summary EIB (Crane & Matten CH 1-9) Book Summary EIB (Crane & Matten CH 1-9)

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|4774703

Book Summary EIB (Crane & Matten CH 1-9)

Ethics and International Business (Rijksuniversiteit Groningen)

StudeerSnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit

PART A: UNDERSTANDING BUSINESS ETHICS

Chapter 1: Introducing Business Ethics

Ethics and law

Ethics and morality

There are several reasons why business ethics is so important:

Business ethics in different organizations

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Large Small Civil society Public sector

Globalization is particularily relevant for business ethics in three areas:

Furthermore, globalization has certain ethical impacts on different stakeholders. This is

Europe North America Asia

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Chapter 2: Framing Business Ethics

Can a corporation have social responsibilities?

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Can a corporation be morally responsible for its actions?

Corporate Social Responsibility (CSR)

 Why do corporations have social responsibilities?

Gedownload door Dan Garcia (dangarcia199@gmail.com)

 What is the nature of these social responsibilities?

CSR in an international context

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Stakeholder theory of the firm

Different forms of stakeholder theory

Corporate citizenship – the firm as a political actor

The concept of corporate citizenship

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Examples are given on page 71 of the book.

Corporate citizenship = social role of the corporation in governing citizenship

Corporate transparency is the degree to which corporate decisions, policies, activities,

Chapter 3: Evaluating Business Ethics

Gedownload door Dan Garcia (dangarcia199@gmail.com)

 Questioning versus accepting capitalism

Normative ethical theories and religion

Western modern ethical theories

Consequentialist ethics = based on intended outcomes, aims, or goals of a certain

Egoism Utilitarianism Ethics of Ethics of

Gedownload door Dan Garcia (dangarcia199@gmail.com)

John Stuart Mill

Consequentialist theories  Focus on outcomes

Important to remark is that egoism is not the same as selfishness!!!

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Non-consequentialist theories  stem for assumptions

Categorical imperative is a theoretical framework that should be applied to every

Especially the consistency principle is visible in different religions as well. In religions it is

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Non-egalitarianism sees justice in economic systems as an ultimate product of the fair

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Also called “entitlement theory”, as wealth distribution is morally

Limits of modern west theories are:

Alternatives perspectives on ethical theory are:

2. Ethical appraoches based on relationships and responsibility

3. Ethical appraoches based on procedures of norm generation

4. Ethical approaches based on empathy and moral impulse

Gedownload door Dan Garcia (dangarcia199@gmail.com)

Chapter 4: Making Decisions in Business Ethics

What is an ethical decision? – three important characteristics:

There are several models of ethical decision-making: