Crane and Matten

Business Ethics (3rd Edition)

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 Introducing
Business Ethics

Lecture 1
 Overview
• What is business ethics?
• Why is business ethics important?
• Globalization: a key context for business
ethics?
• Sustainability: a key goal for business ethics?
 What is business ethics?
Business ethics is the study of business
situations, activities, and decisions
where issues of right and wrong are
addressed.
 Ethics and the law

Ethics

grey
area

Law
 Defining morality, ethics and ethical
theory
• Morality is concerned with the norms, values
and beliefs embedded in social processes
which define right and wrong for an individual
or a community.
• Ethics is concerned with the study of morality
and the application of reason to elucidate
specific rules and principles that determine
right and wrong for any given situation.
• These rules and principles are called ethical
theories.
 The relationship between morality,
ethics and ethical theory

Ethics … to
rationalize produce …that can
s morality ethical be applied
… theory … to any
Potential
Morality Ethics Ethical situation.
solutions to
theory ethical
problems
 Why is business ethics important?
1. Power and influence of business in society
2. Potential to provide major contribution to society
3. Potential to inflict harm
4. Increasing demands from stakeholders
5. Lack of business ethics education or training
6. Continued occurrence of ethical infractions
7. Evaluating different ways of managing business
ethics
8. Interesting and rewarding
 Types of misconduct across sectors
30

© 2008 Ethics Resource Center

27%
25%
24% 24%
20 22%
21% 21%
20%
19%

10
Nonprofit

Business

Government

Putting own interests Lying to Abusive behavior

employees
ahead of org

Source: Ethics Resource Center (2008)

 Observed ethical misconduct across
sectors
75%

© 2008 Ethics Resource Center

60% 57% 57%
52%
52% 56%
55%
50% 46%
55%
46%
49%

43%

Nonprofit

25%
Business

Government

0%

2000 2003 2005 2007

Source: Ethics Resource Center (2008)

Differences across organizational types

Stakeholder Large Small Civil society Public sector

s corporations businesses organizations organizations
Main priorities Financial integrity, Financial integrity, Delivery of mission Rule of law,
in addressing employee/ employee/ to clients; integrity corruption, conflict
ethical issues customer issues customer issues of tactics; of interest;
legitimacy and procedural &
accountability accountability
Approach to Formal, public Informal, trust- Informal, values- issues
Formal,
managing relations and/or based based bureaucratic
ethics systems-based

Responsible Shareholders and Owners Donors and clients General public, higher
and/or other stakeholders level government
organizations
accountable to

Main Shareholder Lack of resources Lack of resources Inertia, lack of

constraints orientation; size and attention and formal training transparency
and complexity
Globalization: a key context for
business ethics?
 What is globalization?
• According to Scholte (2005) globalizationis not :
– ‘internationalization’
– ‘liberalization’
– ‘universalization’
– ‘westernization’
• Globalizationis : a process which diminishes the
necessity of a common and shared territorial
basis for social, economic, and political
activities, processes, and relations.
– ‘deterritorialization’
 Relevance of globalization for
business ethics

• Cultural issues
• Legal issues
• Accountability issues

Globalization can affect all stakeholders of the

corporation
 Ethical impacts of globalization
Stakeholder Ethical impacts of globalization
s Globalization provides potential for greater profitability, but also greater risks. Lack
Stakeholders of regulation of global capital markets, leading to additional financial risks and
instability.
Corporations outsource production to developing countries in order to reduce costs
Employees in global marketplace - this provides jobs but also raises the potential for
exploitation of employees through poor working conditions.
Global products provide social benefits to consumers across the globe, but may
also meet protests about cultural imperialism and westernization. Globalization can
Consumers bring cheaper prices to customers, but vulnerable consumers in developing
countries may also face the possibility of exploitation by MNCs.

Suppliers & Suppliers in developing countries face regulation from MNCs through supply chain
competitors management. Small scale indigenous competitors exposed to powerful global
players.
Global business activities brings the company in direct interaction to local
Civil society communities with possibility for erosion of traditional community life; globally active
(NGOs, etc) pressure groups emerge with aim to “police“ the corporation where governments
are weak and tolerant.
Globalization weakens governments and increases the corporate responsibility for
Government & jobs, welfare, maintenance of ethical standards, etc. Globalization also confronts
regulation governments with corporations from different cultural expectations about issues
such as bribery, corruption, taxation, and philanthropy.
International perspectives on
business ethics
 Different approaches to business
ethics
• Who is responsible for ethical conduct in
business?
• Who is the key actor in business ethics?
• What are the key ethical guidelines for ethical
behaviour?
• What are the key issues in business ethics?
• What is the most dominant stakeholder
management approach?
 Regional differences: Europe, North
America, Asia
Europe N. America Asia

Who is responsible for ethical Social control by the The individual Top management
collective
conduct in business?

Who is the key actor in Government, trade The corporation Government,

unions, corporate corporations
business ethics? associations

What are the key guidelines for Negotiated legal Corporate codes of Managerial
framework of ethics discretion
ethical behaviour? business

What are the key issues in Social issues in Misconduct and Corporate
organizing the immorality in single governance and
business ethics? framework of decisions accountability
business situations
What is the dominant Formalised multiple Focus on Implicit multiple
stakeholder shareholder value stakeholder
stakeholder management approach approach, benign
approach? managerialism
Sustainability: a key goal for
business ethics?
 Defining sustainability
• Sustainable development is development that
meets the needs of the present without
compromising the ability of future
generations to meet their own needs. (World
Commission on Environment and
Development 1987)
• Sustainability refers to the long-term
maintenance of systems according to
environmental, economic and social
considerations
The three components of
sustainability

Economic Social

Environmental
 Triple bottom line
• Coined by John Elkington
• Bottom line thinking suggests sustainability
as a goal
• Three dimensions:
– Environmental perspectives
– Economic perspectives
– Social perspectives
 Corporate commitments to
sustainability
Company Sustainability statement Source
“At BP we define sustainability as the capacity to endure as a group: by
renewing assets; creating and delivering better products and services
BP Sustainability
that meet the evolving needs of society; attracting successive
Report, 2007
generations of employees; contributing to a sustainable environment;
and retaining the trust and support of our customers, shareholders and
the communities in which we operate.”
“[Sustainability] means enhancing our relationship with host and www.
DeBeers partner governments, building consumer confidence in diamonds, and debeersgroup.
ensuring our activities contribute positively to … both present and future com, 2009
generations.”
“Corporate responsibility (CR) at Nokia is a collective effort. We believe
Nokia that management of CR issues is most effective when sustainability CSR Report,
policies and programs are embedded in every aspect of our operations. ” 2007

“ [For Toyota, a guiding principle is] ‘contributing to the development of

Toyota a prosperous society through the manufacture of automobiles.’ Sustainability
‘Contributing to the development of a prosperous society’ means Report, 2008
‘contributing to the sustainable development of the earth.’”
“Values, social responsibility and active sustainability are integral [to]
our company culture. We are future-oriented in our approach to www.
Volkswage important issues such as climate change. We operate a broad range of volkswagenag.
n [R&D] activities and provide trend-setting approaches to the mobility of com, 2009
tomorrow.”
 Summary
• Definition of business ethics
• Business ethics is vital for business in
contemporary capitalism
• Global view is essential to understand ethical
issues
• Different regions have distinctly different
perspective on business ethics issues
• Sustainability is an important goal for
business ethics