Business Ethics Lecture Notes

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Business Ethics - Lecture notes
BUSINESS ETHICS (University of Surrey)
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Week 1 — Introduction to Business Ethics

Introduction
Views on morality
Consequentialist moral reasoning — locates morality in the consequences of an act (in the state of
the world that will result from the thing you do) — 5 lives saved vs 1.
Categorical moral reasoning — locates morality in certain duties and rights — regardless of the
consequences.
Unethical corporate actions

• Deceptive marketing of credit card products — citibank
• Failure to report safety defects — LG Electronics
• Illegal lobbying — Lockheed Martin
• Foreign bribery — Goodyear
• Environmental pollution — BP
What is business ethics?

Business ethics — the study of business situations, activities and decisions where issues of right
and wrong are addressed.
• Includes not only commercial business, but also government organisations, pressure groups,
not-for-profit organisations, charities, and others.
• Multiple stakeholders; group decision-making
The study of business ethics:

• Gathering relevant evidence
• Systematically analysing the evidence through relevant lenses/theories
• Making better (not objectively right) decisions
Ethics applied, some examples

• Executive compensation (e.g. CEOs being paid 2,000 times more than regular employees)
• Sweatshop working conditions
• (Legal) tax avoidance by large corporations
• Ethics for shareholders vs. employees (large vs. small firms)
Are entire industries unethical?

Think about reasons for and against regarding a weapons manufacturer or an animal testing
laboratory, as ‘ethical’.
Animal testing:
• Unethical — animals don't have a say, it’s animal cruelty
• Ethical — in some cases it is needed to test medicine for example which could help to come up
with the cure for a disease (e.g. cancer vs. male baldness)
Weapons manufacturer:
• Unethical — promotes violence (e.g. in America — gun violence)
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• Ethical — can help people such as soldiers/the army who need

the weapons to protect their countries
Relationship between ethics and the law

• Business ethics can be said to begin when the law ends
• Not all ethical issues are covered by the law — for example
there is no rule about cheating on your boyfriend/girlfriend but
it is considered morally wrong.
• Not all legal issues are ethical — for example the law
prescribes whether we should drive to the right or left side of
the road, but it is not an ethical decision.
• Not always a ‘right answer’: the grey areas of business ethics
Why is business ethics important?

1. The power and influence of business in society is greater than ever before. Evidence suggests
that many members of the public are uneasy with such developments. Research shows that
many residents feel that large companies have too much influence on the decisions of their
government. Business ethics helps us to understand why this is happening, what its
implications might be, and how we might address this situation.
2. Business has the potential to provide a major contribution to our societies, in terms of
producing the products and services we want, providing employment, paying taxes, etc. How,
or indeed whether, this contribution is made raises significant ethical issues that go to the heart
of the social role of business in contemporary society. Research sows that 50% of business
executives think that corporations make a mostly or somewhat positive contribution to society,
whilst 25% believe that their contribution is mostly or somewhat negative.
3. Business malpractices have the potential to inflict enormous harm on individuals, communities
and the environment. Through helping us to understand more about the causes and
consequences of these malpractices, business ethics seeks to ‘improve the human condition’.
4. The demands being placed on business to be ethical by its various stakeholders are constantly
becoming more complex and more challenging. Business ethics provides the means to
appreciate and understand these challenges more clearly, in order that firms can meet these
ethical expectations more effectively.
5. Few businesspeople have received formal business ethics education or training. Business
ethics can help to improve ethical decision-making by providing managers with the appropriate
knowledge and tools to allow them to correctly identify, diagnose, analyse, and provide
solutions to the ethical problems and dilemmas they are confronted with.
6. Ethical violations continue to occur in business, across countries and across sectors. For
example, a recent survey showed that one in three workers did not consider their employers to
be fair. Another study in Hong Kong showed that 40% of those with operations in China had
encountered fraud. Business ethics provides us with a way of looking at the reasons behind
such infractions, and the ways in which such problems might be dealt with by managers,
regulators, and others interested in improving business ethics.
7. Business ethics can provide us with the ability to assess the benefits and problems associated
with different ways of managing ethics in organisations.
8. Business ethics is also extremely interesting in that it provides us with knowledge that
transcends the traditional framework of business studies and confronts us with some of the
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most important questions faced by society. The subject can therefore be richly rewarding to
study because it provides us with knowledge and skills that are not simply helpful for doing
business, but rather, by helping us to understand modern societies in a more systematic way,
can advance our ability to address life situations far beyond the classroom or office desk.
The skeptic’s point of view: “We do not need to study business ethics because business is amoral,
like a game of poker.”
“Frameworks are amoral tools that make problems clinically clean and thus may suppress one’s
natural human instincts. Beneath any set of cash flows is a set of affected humans, many of whom
are not represented at the table at which the decision is made. Focusing on NPV analysis and the
cash flows can blind the decision maker (by providing a false sense of rational, systematic,
comprehensive analysis) to all the other, human implications of the decision. The tools are clinical
and amoral (NPV, five forces, etc.) but for precisely that reason the manager cannot afford to be
so. Let your brain do the analysis but give your heart a veto. And if you think a major decision
doesn’t seem to be morally ambiguous, think harder.”
Globalisation
Globalisation — the ongoing integration of political, social, and economic interactions at the
transnational level, regardless of physical proximity or distance.
Events, people or ideas from faraway places can have a very palpable effect on people in
otherwise unconnected locations and situations. Globalisation has resulted from a few main
developments:
• Modern communications technology, from the telephone, to radio and television and now the
internet, have open up the possibility of connecting and interacting with people despite the fact
that there are large geographical distances between them
• Global transportation technologies allows people to easily connect with other people all over the
globe
• Many national borders have been eroded and in some cases abolished, which has allowed
territorial borders to open up worldwide connections between people
Globalisation and business ethics

Cultural issues
What is ‘right’ or ‘wrong’ may depend on culture. CSR initiatives need to be tailored to the local
context. For example, attitudes to racial and gender diversity in Europe may differ significantly to
those in Middle Eastern countries. Similarly, Chinese people might regard it as more unethical to
sack employees in times of economic downturns than would be typical in Europe.
On one hand, globalisation makes regional difference less important since it brings regions
together and encourages a more uniform ‘global culture’. On the other hand, in eroding the
divisions of geographical distances, globalisation reveals economic, political and cultural
differences and confronts people with them.
Legal issues
The more economic transactions lose their connection to a certain regional territory, the more they
escape the control of the respective national governments. This is especially the case when
businesses changes territories — e.g. from their country to a third-world country, where the legal
framework is completely different. Consequently, managers can no longer simply rely on their own
country’s legal framework when deciding on the right or wrong of certain business practices.
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As mentioned earlier, business ethics begins where the law ends, then this deterritorialisation
increases the demand for business ethics because deterritorialized economic activities are beyond
the control of national governments. Examples of legal issues that interlink with ethics includes tax
rates, worker’s rights, pollution control, etc.
Accountability issues
The more economic activities get deterritorialized, the less governments can control them, and the
less they are open to democratic control by the affected people. Consequently, the call for direct
(democratic) accountability of MNCs has become louder in recent years, evidenced, for example,
by anti-globalization protests. Put simply, globalization leads to a growing demand for corporate
accountability. It is exactly here where business ethics is increasingly in demand since it offers the
potential for corporations to examine and respond to the claims made on them by various
stakeholders. Indeed, globalization can be seen to affect all stakeholders of the corporation.
E.g. Who controls MNCs (multinational corporations)? Who is accountable for (un)ethical
behaviour in global supply chains?
Sustainability
Environmentally ethical companies: Greenpeace, Adidas, Primark
Socially ethical companies: Bodyshop, Lush, Innocent smoothies
Sustainability — “development that meets the needs of today without compromising the ability of
future generations to meet their own needs” (WCED — 1987)
Sustainability refers to the long-term maintenance of systems according to environmental,

economic and social considerations.
Corporate Social Responsibility (CSR)

• “…The economic, legal, ethical and discretionary expectations that society has of
organizations" (Carroll, 1979)
• Adopts a ‘stakeholder perspective’ — CSR is the “discernment of issues, expectations and
claims on business organisations regarding the consequences of policies and behavior on
internal and external stakeholders” (Epstein, 1978)
• Recognises social ‘cost’ of business activity
• Ethical behaviour
Why bother?
• Pressure from government

• Pressure from consumers
• Level of adoption — remains a challenge for retailers
The measurement for this is known as the triple bottom line: economic, environmental and social
sustainability.
Triple bottom line: planet, people, profit

The TBL represents the idea that business do not have just one single goal — namely adding
economic value — but that it has an extended goal set which necessitates adding environmental
and social value too. From this perspective, it should be clear why sustainability is an important
new goal for business ethics.
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Environmental perspective
The effective management of physical

resources so that they are conserved for the
future. All biosystems are regarded as having
finite resources and finite capacity, and hence
sustainable human activity must operate at a
level that does not threaten the health of those
systems. These are critical problems:
• Impacts of industrialisation on biodiversity

• The continued use of non-renewables e.g.
oil, steel, coal
• Production of damaging environmental
pollutants e.g. greenhouse gases and CFCs
from industrial plants and consumer products
Economic perspective
The economic perspective of sustainability

initially emerged from economic growth
models that assessed the limits imposed by
the carrying capacity of the earth. The recognition that continued growth in population, industrial
activity, resource use, and pollution could mean that standards of living would eventually decline
led to the emergence of sustainability as a way of thinking about ensuring that future generations
would not be adversely disadvantaged due to the choices of the present generation. It focuses on:
• The economic performance of the corporation itself: the responsibility of management to develop,
produce and market products that secure long-term economic performance for the firm
• The company’s attitude towards and impacts upon the economic framework in which it is
imbedded
Social perspective
The explicit integration of social concerns into the business discourse around sustainability has
emerged in response to concerns regarding the impacts of business activities on indigenous
communities in less developed countries and regions. The key issue includes:
• Social justice — despite the impressive advances in standards of living, a recent UN report on
the World Social Situation identified persistent and deepening inequality across the globe —
disparities in health, education and opportunities for social and political participation
Your choices and the planet
The decisions which you make can have a massive impact on the environment. For example, after
a car crash and considering which parts to reconstruct your car from: new parts or old parts from a
car which was also involved in a crash? Economically, environmentally and socially, the old parts
would be better for the environment. However, it is very important to consider all factors (especially
businesses).
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What are the implications of triple bottom line for supply chain management?
Food miles
This is the distance that food travels between the point of production and the point of consumption.
Consumption of local produce in season will hence reduce the environmental cost of transportation
(local sourcing).
In the winter months, imported, field-grown Spanish tomatoes, which benefit from ‘free’ sunlight
may generate less CO2 than their UK hot-house equivalents, even once the additional transport is
taken into account.
What are the pros and cons of sourcing commodity items in low wage economies?
Pros Cons
• Cheaper for host country • Air freight pollution

• Provides labour in low-income economies • Working conditions are not ideal for laborers (in
Kenya — warm conditions, too much physical
exhaustion)
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Week 2 — Modern business ethical theories: Why

should business be ethical?
Corporations
What is a corporation?
• Most dominant form of business entity in the modern global economy
• A corporation is a “legal person”.
• The purpose of a corporation is to make profit
• Limited liability
• It has all the rights of a person except for the right to vote
• Legally, corporations are regarded as independent from those who work in them, manage them,
invest in them, or receive products and services from them
• Corporations are separate entities in their own right — for this reason, corporations are regarded
as having perpetual succession, i.e. as an entity, they can survive the death of any individual
investors, employees, or customers — they simply need to find new ones
• The corporation itself own its assets
• Shareholders own a share that entitles them to a dividend and some say in certain decisions that
affect the company
Can a corporation be morally responsible?

Milton Friedman (1970) published an article questioning the social role of corporations:
1. Only human beings have a moral responsibility for their actions — corporations are not human
beings and therefore cannot assume true moral responsibility for their actions. Since
corporations are set up by individuals, it is those people who are then individually responsible
for the actions of the corporation.
2. The first and foremost responsibility of business is to make profit — managers should act solely
in the interest of shareholders as this is what the company has been set up for. Acting for any
other purpose constitutes betrayal of their special responsibility to shareholders.
3. Social issues are the proper province of the government rather than corporations — managers
should not, and cannot, decide what is in society’s best interests, as this is the government’s
job. Corporate managers are neither trained to set and achieve social goals, nor are they
democratically elected to do so.
Counter arguments to 1st point:
• Legal identity: a “legal person” — corporations pay taxes, can sue, claim rights, etc.
• Functional identity: corporations present themselves and interact with customers as if they were
a distinct person e.g. McDonalds “I’m loving it”
• Agency: corporations make decisions independently of their members through an internal
decision structure, and hence decisions can often be traced back to individual actors
• Organisational culture: a set of beliefs and values stipulating what is right or wrong in the
corporation
Counter arguments to 2nd point:
• Corporations cause social problems

• Corporations are powerful —> they should use their power responsibly
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Counter arguments to 3rd point:
• Corporations rely on the contribution of a wide set of stakeholders in society, not just
shareholders
• Corporations’ actions have impact on a wide set of stakeholders
• Business reasons (‘enlightened self-interest’)
• Extra and/or more satisfied customers
• Employees may be more attracted/committed
• Forestall legislation (e.g. to avoid Dodd-Frank Act)
Discussion: did Facebook elect Trump?

“Facebook’s fake news threatens democracy” —
news.sky.com
“[Marc Zuckerberg] knows, and those of us at the
company know, that fake news ran wild on our
platform during the entire campaign season” —
member of the Facebook task force
Is Facebook morally responsible for fake news and

their consequences to society?
On one hand:
• It is the responsibility of the reader to be educated
enough to determine which articles are real and
which are not
• There is also freedom of speech
• Facebook cannot possibly control how much feed is
being posted on a constant basis
On the other hand:

• If this headline was major, employees could have done something about it to stop this fake news
from spreading even further
Beyond Capitalism
“Everybody is doing it. In Capitalism, you try to get the highest price.” — Martin Shkreli
Businesses should pursue more than just their bottom line, they should have a higher purpose.
Conscious capitalism is primarily doing business in a conscious way. This term has four key
themes to it:
• Every business has the potential of a higher purpose, other than just making money
• It should create value for all of the interdependent stakeholders, not just investors, customers,
employees, etc
• There is a different type of leadership involved — one which is focused on the higher purpose of
the business and serving the stakeholders
• Create a culture in the organisation that allows people to flourish and helps them to reach their
higher potential in their lives
Corporate Social Responsibility

Corporate social responsibility — the attempt by companies to meet the economic, legal, ethical
and philanthropic demands of a given society at a particular point in time.
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The CSR pyramid
• Economic responsibilities — companies have shareholders who demand a reasonable return on

their investments, they have employees who want safe and fairly paid jobs, they have customers
who demand good quality products at a fair price, etc. This is, by definition, the reason why
businesses are set up in society and so the first responsibility of business is to be a properly
functioning economy unit and to stay in business. This first layer of CSR is the basis for all the
subsequent responsibilities.
• Legal responsibility — the legal responsibility of corporations demands that businesses abide by
the law and ‘play the rules of the game’. Laws are the codification of society’s moral views, and
therefore abiding by these standards is a necessary prerequisite for any further reasoning about
social responsibilities. The satisfaction of legal responsibilities is required of all corporations
seeking to be socially responsible.
• Ethical responsibility — these responsibilities oblige corporations to do what is right, just, and fair
even when they are not compelled to do so by the legal framework. These consist of what is
generally expected by society over and above economic and legal expectations.
• Philanthropic responsibility — the model incorporates activities that are within the corporation’s
discretion to improve the quality of life of employees, local communities, and ultimately society in
general. Philanthropic responsibilities are merely desired of corporations without being expected
or required, making them less important than the other categories.
Stakeholder theory
Stakeholder theory and CSR: two interrelated theories
A stakeholder of an organisation is: any group or individual who can affect, or is affected by, the
achievement of the organisation’s objectives (Freeman 1984:46)
The stakeholder theory of the firm is probably the most popular and influential theory to emerge
from business ethics. The theory helps us to find a pragmatic answer as to what the “S” in CSR in
a given situation actually is:
Stakeholders = constituencies, the society, the “social”
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Milton Friedman — believes that businesses should only be run in the interests of their owners/
shareholders
Freeman — believes that other social groups have a legitimate claim on the corporation as well:
• Legal perspectives (e.g. legally binding contracts)
• Externalities
• Many shareholders only have a short term interest in the corporation, while employees and
customers have a long term interest in it
Traditional management model
Suppliers, employees, and shareholders provide the basic resources for the corporation that then
uses these to provide products from consumers. The shareholders are the ‘owners’ of the firm and
they consequently are the dominant group, on behalf of whose interests the firm should be run.
A contemporary model
The shareholders are one group among several others. The company has obligations not only to
one group, but also to a whole variety of other constituencies that are affected by its activities. The
corporation is thus situated at the centre of a series of interdependent two-way relationships.
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A network model
It is important to remember that stakeholder groups might also have duties and obligations to their
own set of stakeholders, and to the other stakeholders of the corporation. This gives rise to the
network model as shown above.
A new role for management

Rather than simply being agents of shareholders, management has to take into account the rights
and interests of all legitimate stakeholders.
• Stakeholder democracy: gives stakeholders an opportunity to influence and control corporate
decisions
• Corporate governance: should all major stakeholders sit on the board?
Using stakeholder theory for analysis
• Who are your firm’s stakeholder groups? (“mapping”)

• How important is each of them to your firm?
• Which stakeholder groups we should pay attention to?
• Power: how much impact does the stakeholder have over the firm?
• Legitimacy: how much impact does the firm have over the stakeholder?
• Urgency: is immediate attention required?
• How should the firm engage with each stakeholder group? (formulating actions)
Corporate citizenship
Towards the middle of the 1990s, the term ‘corporate citizenship’ (CC) emerged as a new way of
addressing the social role of the corporation. It is complicated to give only one definition of
corporate citizenship as it has been involved in numerous debates.
Firms have begun to take on the role of ‘political’ actors:

• Levi’s campaigning to raise awareness of HIV and AIDS
• American Apparel’s “Legalize LA” initiative and “Legalize gay” campaign 
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Firms take up many of the functions previously undertaken by government because:

• Government failure (e.g. a MNC in a developing country)
• Increasing power and influence of corporations
• Firms have political leanings
Examples of CC statements
Three views of corporate citizenship
CC has three different perspectives:

• A limited view — this equates CC with corporate philanthropy.
• An equivalent view — this equates CC with CSR.
• An extended view — this acknowledges the extended political role of the corporation is society.
Limited view of CC
This view tends to focus nearly completely on the direct physical environment of the company,
resulting in a strong focus on local communities as the main stakeholder of the firm. Citizenship in
this aspect is about putting something back into the community. There is little that is genuinely new
here and only very limited reference to the usage of the term ‘citizenship’.
Equivalent view of CC
The second common understanding of CC consists in a somewhat updated table for CSR, without
attempting to define any new role or responsibilities for the corporation. The most striking example
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for this use of CC is probably Carroll himself who defines CC exactly the same way as he initially
defined CSR two decades ago. Clearly, this is a very common way of employing the terminology of
CC, but given that it creates a lot of conceptual confusion.
Extended view of CC
The extended view takes as its starting point the notion of ‘citizenship’. The current understanding
of citizenship that is dominant in most industrialized societies is based on the liberal tradition,
whereas citizenship is defined as a set of individual rights. Liberal citizenship comprises of social
rights, civil rights and political rights.
The trend: integrating the social and the profit

Responsible business as a global movement
Civil society
• Shell OIl’s face off with Greenpeace on Brent Spar

• PETA protests against KFC
Media and the public
• Various CSR rankings

• Social investing
Governments
• Holding corporations responsible for social consequences

• Requiring more disclosure of social and environmental actions
Integrated CSR: Key considerations

• Identify the intersection of a firm’s business and the society
• Choose which social issues to address
• Design CSR strategies that integrate the firm’s business and the relevant social issues
The essential test that should guild CSR is not whether a use is worthy but whether it presents an
opportunity to create shared value.
The trend: integrating the social and the profit

1. Corporations and
society: not a
zero-sum game
2. CSR can be much
more than a cost,
a constraint, or a
charitable deed —
it can be a source
of opportunity,
innovation, and
competitive
advantage
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Week 3 — Classical ethical theories: what is the

right thing to do?
Ethical dilemma
“A moral or ethical dilemma is a situation in which a person does not know how to act because of
conflicting beliefs about what is required.”
1. A dilemma is something experienced by an individual

2. Dilemmas are context-specific and situational
3. Dilemmas require knowledge of the context
4. They require judgement
5. They require action
The role of ethical theory

Two stances can be taken towards ethics:
Ethical absolutism
Ethical absolutism claims that there are eternal, universally applicable moral principles.
• Right and wrong are objective qualities that can be rationally determined
• Typically traditional ethical theories
Ethical relativism
Ethical relativism claims morality is context-dependent and subjective.
• No universal right and wrongs that can be rationally determined
• Depends on person making the decision and culture in which they are located
• Typically contemporary ethical theories
The middle road: ethical pluralism

Ethical pluralism occupies something of a middle ground
between absolutism and relativism. Pluralism accepts
different moral convictions and backgrounds, while at the
same time suggesting that a consensus on basic
principles and rules in a certain social context can, and
should, be reached.
Ethical theories can help clarify different moral

presuppositions of the various parties involved in a
decision — one person may think in terms of one theory,
while another might think it in terms of another one. In
making good business decisions, we need to understand
this range of perspectives to establish a consensus on the solution to ethical problems.
Rather than establishing a single universal theory, there are different theoretical frameworks as
complementary resources or conceptual tools that help to make a practical, structured, and
systematic assessment of the right and wrong in particular business decisions. Theory can help to
clarify these situations and each theory highlights different aspects that need to be considered.
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Western modernist ethical theories

In Western societies, the ethical theories traditionally regarded as appropriate for application to
business contexts are based on philosophical thinking generated in Europe and North America.
They generally offer a certain rule or principle that one can apply to any given situation — hence,
they are absolutist. These theories can be differentiated into two groups:
Normative ethical theories

Normative ethical theories — the rules and principles that determine right and wrong for a given
situation.
• Egoism
• Utilitarianism
• Duty ethics (categorical imperative)
• Ethics of rights and justice
• Virtue ethics
Normative theories start with an assumption about the nature of the world and the nature of human
beings, as opposed to descriptive ethical theories, which seek to describe how ethics decisions are
actually made in business.
Consequentialist (teleological) theories

Egoism
Following the theory of egoism, an action is morally right if the decision-maker freely decides in
order to pursue either their (short-term) desires or their (long-term) interests.
Person(s) involved: Adam Smith, Milton Friedman
One of the oldest Greek philosophical ideas, egoism has also been influenced by modern
economists, in particular in relation to Adam Smith’s ideas about the design of liberalist economies
and Milton Friedman’s advocacy of free markets with limited government.
The justification for egoism lies in the underlying concept of humans: as we have only limited
insight into the consequences of our actions, the only suitable strategy to achieve a good life is to
pursue our own desires and interests. If a decision maker pursues their own desires and interests
at other egoists’ expense, then the action is immoral, and their action will lead to unfavourable
results.
Adam Smith argued that in the economic system, this pursuit of individual self-interest was
acceptable because it produced a morally desirable outcome for society through the ‘invisible
hand’ of the marketplace i.e. one is likely to find a moral outcome as the end-product of a system
based on free competition and good information. Everyone must be free to pursue their own self
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interests, unencumbered by market imperfections such as monopolies or limited knowledge of the

products and prices available in the market.
“To maximise our utility”
Utilitarianism
According to utilitarianism, an action is morally right if it results in the greatest amount of good for
the greatest amount of people affected by the action.
Person(s) involved: Jeremy Bentham, John Stuart Mill
This principle, also called the ‘greatest happiness principle’ is the ultimate consequentialist
principle. It focuses solely on the consequences of an action, weighs the good results against the
bad, and finally encourages the action that results in the greatest amount of good for all people
involved. Egoism is more focused on individuals, whereas this theory is more inclusive and keep
into account everyone’s utility (collective welfare).
The underlying idea is the notion of utility, which Jeremy Bentham sees as the ultimate goal in life.
Humans are seen as a hedonist, whose purpose in life is to maximise pleasure and minimise pain,
and this is applied to utilitarianism. We are all governed by the feeling of pain and pleasure — they
are our “sovereign masters”. Hence, utility can be measured in terms of pleasure and pain,
happiness and unhappiness and also intrinsically valuable human goods (e.g. love, friendship,
trust, etc.)
In order to determine whether an action is morally right, a cost-benefit/utilitarian analysis needs to

be carried out. This involves analysing two possible options, assigning a certain utility to each
action and person involved, and the action with the highest aggregate utility can be determined to
be morally correct.
“To maximise collective utility”
Non-consequentialist (deontological) theories

Ethics of duties
Person(s) involved: Immanuel Kant
Kant argued that morality and decisions about right and wrong were not dependent on a particular
situation, let alone on the consequences of one’s action. For Kant, morality was a question of
certain eternal, abstract, and unchangeable principles — a set of a priori moral laws — that
humans should apply to all ethical problems. He saw humans as rational actors, who could decide
these principles for themselves, and are hence regarded as independent moral actors who made
their own rational decisions regarding right and wrong.
Categorical imperative
Kant subsequently developed a theoretical framework through which these principles could be
derived, called the ‘categorical imperative’. By this he meant that this theoretical framework should
be applied to every moral issue regardless of who is involved, who profits, and who is harmed by
the principles once they have been applied in specific situations.
According to Kant, these three maximums can be used as tests for every possible action, and an
action is to be regarded as morally right if it ‘survives’ all three tests. Many have mentioned that
there are similarities between Kant’s theory and religious practices.
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Maxim 1: An action can only be right if the rule guiding that behaviour should be followed
Consistency consistently by everyone in all cases, without contradiction.
• Checks if the action can be performed by everyone
• E.g. murder is an immoral action because if we allow everybody to murder there would
be no possibility of human security on earth
Maxim 2: Act so that you treat humanity, whether in your own person or in that of another, always
Human dignity as an end and never as a means only.
• Humans deserve respect as autonomous, rational actors — this human dignity should
never be ignored
• We shouldn't treat people as a means to get what we want and forget about their own
needs and goals in life
Maxim 3: The rules guiding our actions should be universally lawgiving, that is, they have to be
Universality acceptable to ever rational human being
• They have to be acceptable for every human being, because they are rationally
acceptable, not because they have been told to accept them
• Tries to overcome the risk of subjectivity which is present in the utilitarian analysis
• E.g. if you would be uncomfortable that your actions were reported in the press it
means that you believe others disagree with the rules guiding your actions
“To follow categorical imperatives”
Ethics of rights and justice

Rights
Human rights —basic, unalienable entitlements that are inherent to all human beings, without
exception.
British philosopher John Locke conceptualised the notion of ‘natural rights’, or moral claims, that
humans were entitled to, and which should be respected and protected. Today, basic human rights
include:
• Rights to life
• Freedom
• Property
• Freedom of speech
• Conscience
• Consent
• Privacy
• Entitlement to a fair legal process, among others
These rights typically result in the duty of other actors to respect them. In this respect, rights are
sometimes seen as related to duties, since the rights of one person can result in a corresponding
duty on other persons. E.g. my right to property imposes a duty on others not to interfere with my
property or take it away. The only difference from Kant’s theory is that the categorical imperative is
not applied. Instead, the notion of rights is based on a certain axiomatic claim about human nature
that stems from various philosophical approaches and often backed up with religious views.
It is this background that makes the entire notion of human rights one of the most common and
important theoretical approaches to business ethics on a practical level. Corporations, especially
multinationals, are increasingly judged with regard to their attitude to human rights and how far
they respect and protect them. Many companies are now increasingly seeking to develop their own
human rights policies.
Ethical dilemma 3
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In using child labour, the product manager could be said to violate the rights of the children to
education, and arguably to infringe the right to freedom of consent. Also, it would appear that poor
wages could have necessitated the engagement of the entire family in employment rather than
paying one parent a suitable wage to provide for his or her family.
Justice
Justice — the simultaneously fair treatment of individuals in a given situation with the result that
everybody gets what they deserve.
Equal rights need to be raised in such a way that they are addressed equally and fairly. This is
where the issue of justice arises. The crucial moral issue here is the question of what exactly
‘fairness’ means in a particular situation and by which standards we can decide what a person
might reasonably deserve. According toe Beauchamp and Bowie (1997), theories of justice
typically see fairness in two ways:
• Fair procedures (procedural justice) — fairness is determined according to whether everyone has
been free to acquire rewards for his or her efforts.
• Fair outcomes (distributive justice) — fairness is determined according to whether the

consequences (positive and negative) are distributed in a just manner, according to some
underlying principle such as need or merit.
Most views of justice would ideally seek to achieve both types of fairness, but this is not always
possible. Notions of justice have been widely applied in business ethics problems, notably in
relation to employment practices and the question of discrimination. Justice has also been a key
feature of debates about globalisation and sustainability. Here, the main concern is about issues of
social and economic justice.
“To choose under the “veil of ignorance””: ignorant about place in society, take the position of the
least well off member.
John Rawls: A Theory of Justice (1971)
Rawls suggests two criteria — two ‘tests’ — to decide whether an action could be called just.
According to John, justice is achieved when:
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.
2. Social and economic inequalities are arranged so that they are both:
(a) To the greatest benefit of the least advantaged
(b) Attached to the offices and positions open to all under conditions of fair equality of
opportunity
Ethical dilemma 3
The first test would be to ask if all people involved were in possession of the same basic liberty.
Apart from the cultural differences, this is certainly not the case for the children, since they are
obviously not allowed to have even a basic education. The second principle could conceivably
allow for a more tolerant approach to child labour: the first criterion would be to ask if the children
are better or worse off with the arrangement. One might say that children are often forced into
worse things such as prostitution and begging. However, if concluding your deal meant that the
children would miss schooling that they could have had, then the arrangement is not beneficial.
The second criterion poses even more of a problem, since without access to education the children
do not have a realistic chance of achieving the position that the better-off parties have. Hence, they
are not ‘under conditions of fair equality and opportunity’.
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Alternative perspectives on ethical theory

Virtue ethics
Virtue ethics — a theory that contends that morally correct actions
are those undertaken by actors with virtuous characters, and that the
formation of a virtuous character is the first step towards morally
correct behaviour.
In virtue ethics, the main message is that ‘good actions come from
good persons’, where good persons are defined in terms of certain
traits or characteristics, namely ‘virtues’. Virtues are a set of acquired traits of character that enable
a person to lead a good life. Virtues can either be intellectual e.g. wisdom, or moral e.g. honesty.
These cardinal virtues include for example:
• Humility • Fortitude/bravery
• Integrity • Transcendence • Temperance
• Accountability • Humanity • Happiness
• Courage • Prudence • Practical wisdom 
• Collaboration • Justice
All of these virtues are manifested in actions that are a habitual pattern of behaviour of the virtuous
person, rather than just occurring once or in one-off decisions. These virtues are acquired by
learning and most notably in business, by being in relationships with others in a community of
practice. The right act is the action that a virtuous person would do. This provides guidance as to
the sort of characteristics and behaviours a good person will seek to achieve.
Central to the ethics of virtue is the notion of a ‘good life’. For Aristotle, one of the original
proponents of virtue ethics consists of happiness. A happy businessperson would not only be one
who finally makes the most money, but one who does so whilst at the same time savouring the
pleasures of a virtuous manner of achieving their success. In a business context, the ‘good life’
means far more than being a profitable company — it looks at the way profit is achieved,
satisfaction of employees, good relationships, etc.
“Do the things a virtuous person does”
The logic of appropriateness

Actors seek to fulfil the obligations as appropriate for a role, or for a membership in a community.
They do so without, or in spite of, calculation of consequences and expected utility.
Martin Luther facing the Diet of Worms in 1521: “Here I stand, I can do no other”
Don Quixote
• What is Don Quixote’s guiding principle?
• What kind of beliefs drove Don Quixote to act so “differently” despite the scorn of other people?
“Quixote is hardly a good model for leadership, but he provides a basis for thinking about what
justifies great action…we do what we do because we expect it to lead to good consequences.
Quixote reminds us that there is another possible answer. We do what we do because it fulfils our
identity, our sense of self.” — James G. March, Professor at Stanford
Case study: Tom’s decision

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Tom was an uprising manager in a manufacturing firm. Today, he was attending a prestigious
meeting. Tom had enjoyed the session until the topic shifted to the new manufacturing plant the
company was adding to the current location.
• A chemical engineer mentioned that the current waste facilities were not adequate enough to
handle the waste products that would be created by this new plant
• Tom’s boss noted that the estimated cost per unit would be increased if the waste treatment
facilities were upgraded
• The CEO then mentioned that he was not in favor of any more expenditures. Most managers at
this meeting resoundingly agreed with the CEO
Decision time
Tom did not hear a word during the rest of the meeting. He kept wondering how the company could
have such a casual attitude towards the environment. Yet, he did not know if he should voice his
opinion.
To what extent is it Tom’s responsibility to take action?
Practice questions
1. In his influential 1970 article, Milton a. Socially responsible firms may find it
Friedman protested against the notion of easier to attract employees, who may
corporate responsibility for corporations. be more committed.
Which of the following is NOT one of the b. Socially responsible companies voluntarily
three main premises of his argument? take responsibilities to solve the social and
environment problems their activities have
a. Social issues and problems are the proper caused.
province of the state rather than corporate c. Corporations seen as responsible may
managers. attract more and/or more loyal
b. It is managers’ responsibility to act solely in customers.
the interests of shareholders. d. By engaging in voluntary CSR,
c. Corporate responsibilities limit a corporations may avoid government
corporation’s freedom. ? legislation.
d. Only human beings have a moral
responsibility for their actions. 4. What are the trends in contemporary
CSR? Select all that apply.
2. Scholars supporting CSR argue that
corporation can be morally responsible for a. CSR is about value creation
its actions, because it has agency b. CSR is in-built
independent of its members. The main c. CSR is primarily reactive to social pressure
arguments in support of this point centre and demands
on a corporation’s internal decision d. CSR is a cost the a corporation must take
structure and organizational culture. up
3. It is now generally accepted that business 5. Consequentialist ethical perspectives base

responsibility does extend beyond simply their moral judgement on the motivations
making a profit. Which of the following are and/or principles of the actors.
business reasons for CSR? Please select
all that apply. a. True
b. False  
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Week 4 — Understanding and managing business

ethics
Lesson #1
Descriptive business ethics — these seek to describe how ethical decisions are actually made in
business, and what influences the process and outcomes of those decisions.
Normative ethical theories prescribe behaviour. They help us decide between right and wrong.
Descriptive ethical theories describe behaviour. They describe why people behave ethically or
unethically within the business environment.
Descriptive ethical theories provide an important addition to the normative theories as they seek to
tell us what business people actually do, and more importantly, they will explain why they do it.
What is an ethical decision?

Imagine you are downloading a copy of Kanye West’s new album from your friend. Are you faced
with a moral dilemma? Is this an ethical decision? Perhaps, for you, this is simply a normal
practice, but Mercury Records may take a very different perspective.
So how do we objectively decide whether a situation should be assigned a moral status in the first
place? There are a number of factors that we might identify here, the most important of which are:
• The decision is likely to have a significant effect on others — copying an album does have
material effects on others, namely the record label, the musicians, and other organizations that
have contributed their time and effort to its production.
• The decision is likely to be characterized by choice, in that alternative courses of action are open
— a moral decision requires that we have a choice. In the normal course of affairs, you have the
option to copy it or not (except for it you accidentally copied it, which is a rare occasion). When
decision makers actually recognize that they have ethical choices, then they face an ethical
dilemma.
• The decision is perceived as ethically relevant by one or more parties — regardless of whether
the decision-maker sees a decision as having ethical content, if others do, then the decision
immediately incurs some degree of ethicality. However, just because someone copies albums all
the time without ever considering it to be an ethical decision, this does not mean that they are
engaging in an ethically neutral act.
Stages of (un)ethical decision making

In a review of research on ethical decision making in business, Jones was suggested to have the
model that ‘provides the most comprehensive synthesis model of ethical decision making’. Jones
bases his model on a four-stage process of ethical decision making introduced by James Rest.
According to this model, individuals move through a process whereby they:
1. Recognise a moral issue

2. Make some kind of a moral judgment about that issue
3. Establish an intention to act upon that judgement
4. Act according to their intentions
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What influences (un)ethical decision making?

(Un)ethical decisions are influenced by both individual and contextual factors.
Lesson #2
Ethical and unethical decisions are influenced by individual factors. These include:
• Personal values and integrity
• Personal background
• Psychological factors — locus of control and moral imagination
Values, integrity and background

Personal values
Personal values — individual beliefs about desirable behaviours and goals that are stable over
time.
This means that values are about the behaviours and things that we deem important in life, such
as family values, work ethic, environmental values. These values:
• Persist over time
• Influence behaviour
• Are concerned with individual and/or collective wellbeing
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Hence, such values include examples like self-respect, freedom, equality, responsibility and
honesty. Personal values have long been argued to be influential in the type of decisions we make
in organisations. This is particularly true of ethical decisions since values are key repositories of
what we regard to be good/bad and right/wrong.
Personal integrity
Integrity — a person’s ability to adhere to a consistent set of moral principles or values.
Integrity is typically seen as one of the most important characteristics of an ethical person, as seen
for a ‘virtuous’ decision maker (virtue ethics). For example, this means ‘walking the talk’, i.e. being
consistent in word and action.
Background and experience
Background and experience — the exposure to different environments.
For example, business and economics students cheat more.
Psychological factors
Locus of control
Locus of control — the extent to which a person believes that they have control over the events in
their life.
Someone with a high internal locus of control believes the events in their life can be shaped by
their own efforts, whereas someone with a high external locus of control believes that events tend
to be the result of the actions of others, or luck, or fate. For example, after failing an exam, who do
you blame? The person who made the exam or the student who sat it?
Moral imagination
Moral imagination — the creativity with which one can reflect on an ethical dilemma. It helps us to
find better solutions to our ethical dilemmas in a more creative way.
Higher levels of moral imagination can allow us to see bend the rules of the game that seem to be
operating in the workplace, and beyond the day to day supposed ‘realities’ of organizational life, so
as to question prevailing ways of framing and addressing organizational problems.
• Seeing beyond the rules of the game to find solutions

• Rationalization
• “It’s what helps us to sleep better at night”
Lesson #3
(Un)ethical behaviour in organisations is largely influenced by the national context. Just as culture
of the organisation or work group may influence ethical decision making, so might the country or
culture in which the individual’s organisation is located.
IKEA in Russia
IKEA is the world’s largest furniture retailer. It entered the Russian
Market in 2000, thinking there would be a market there. It has made
large investments in infrastructure, logistics and marketing.
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However, they had a problematic marketing campaign. The overpass road to the store was not
finished by the city of Moscow. A few weeks before the grand opening, the local utility requested a
‘special fee’ to provide electricity (a bribe).
Leenart Dahlgren, general manager of IKEa in Russia, had to act fast.

• Could IKEA afford to postpone or even completely cancel the opening?
• Or should he just pay whatever was required?
An ethical decision:
• Alternative courses of action are open

• The decision is likely to have effects on others
• The decision is perceived as ethically relevant by one or more parties
IKEA’s solution
• Bypassed the utility company by renting diesel generators to power the outlet
• This was a form of moral imagination, using a creative idea to solve a problem
• The opening was a great success:
• 37,000 people showed up on the first day
• The exit to IKEA was 5km long
• Utility gave in and started providing electricity
IKEA expanded further in the Russian market. They used the same strategy of renting out
generators. However, they realised that costs were too high, due to internal corruption:
• A Russian IKEA executive was taking cash payments from the diesel generator rental company
• The generator company charged IKEA a much higher than normal rental price.
• IKEA went to court, with little success.
Lesson #4
(Un)ethical behaviour in organisations is largely influenced by industry culture.
The story of Bernard Madoff

Bernard Madoff is the founder and chairman of the Wall Street firm Madoff
Investment Securities LLC. He operated the largest Ponzi scheme (a Ponzi
scheme is a fraudulent investment scheme whereby the company pays returns to
its investors from new capital paid by new investors, rather than from profit
earned through legitimate sources).
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Competing in sports
Maradona in 1994 was caught doping.
Eventually the Argentina team took him
out so that they wouldn't receive a
sanction. This has also been happening
for other athletes such as:
• Lans Armstrong
• L. Christie
• Marian Jones
• Tyson Jay
Are these the ‘bad apples’?

Are the financial fraud, doping, and other types of misconduct always done by ‘evil’ people with
bad intentions?
Lesson #5
(Un)ethical behaviour in organisations is largely influenced by the organizational context.
• Incentives
• Leadership/authority
• Peer effects
• Routines
• Organisational culture
• Organisational roles
• Bureaucracy
Incentives
Incentives — the systems of reward and punishment within the organisation. “What is right in the
organisation is what gets rewarded”.
Example
• Employee 1 achieves a 20% increase using hard work

• Employee 2 achieves a 25% increase by use of cheating
• Employee 2 gets promoted, employee 1 does not
Ethical violations that go unpunished are likely to be repeated. Similarly, adherence to ethical
principles and standards stands less chance of being repeated and spread throughout a company
when it goes unnoticed and unrewarded. There is considerable evidence to suggest that
employees’ ethical decision making is indeed influenced by the systems of reward they see
operating in the workplace.
Leadership and authority

Authority — the exercise of hierarchical power to compel a subordinate to act in a certain way.
“What is right in the organisation is what the guy above you wants from you”
Managers can have an influence over their subordinates’ ethical behaviour by setting a bad
example. Clearly, those in authority can influence their employees’ ethical decision making simply
by looking at the way when confronted with potential problems.
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What if the superiors, or the system is corrupt? — The corruption experiment
Dan Ariely, professor of psychology and behavioral economics at Duke University, set up an
experiment to measure dishonesty using a coin and a six-sided die. Conclusion: "if the person
running the system is telling us corruption or dishonesty is allowed, our understanding of what is
acceptable changes instantly."
The informal organisation

Peer effects — direct or indirect influence of similar others on one’s behaviour (due to pressure or
mere exposure).
For example, this happens with students in the classroom and with stockbrokers in finance as well.
Routines — repeated patterns of behaviour or interactions. These are often mechanically

performed activities or procedures.
For example, as seen in the competitive sports industry, doping becomes a routine. This is the
same thing for illegal downloads, such as copying that Kanye West song from a friend. In
organisations, routines ensure stability and save time. But, sometimes they ‘hide’ ethical
implications.
Organisational culture
Organisational culture — the meanings, beliefs, and common-sense knowledge that are shared
among members of an organisation, and which are represented in taken-for-granted assumptions,
norms, and values.
Organisational culture has been widely identified as a key issue in shaping ethical decision making.
Many authors speak of the need of an ‘ethical culture’ to enhance and reinforce ethical decision
making. However, the deliberate management of culture is an extremely challenging undertaking,
and one where many of the outcomes will be unpredictable.
Organisational culture as ‘the smell of the place’: how does it feel when you're in the organisation?
Example of summer months in Calcutta and a spring afternoon in a forest in France.
Work roles and bureaucracy

Work roles
Work roles — these are patterns of behaviour expected by others from

a person occupying a certain position in an organization. They can be
functional — e.g. the role of an accountant, engineer or shop assistant
— or hierarchical — e.g. the role of a director, manager or supervisor.
In the business ethics context, prescribed work roles, and hire

concomitant expectations placed on the person adopting the role, would appear to be significant
influences on decision making. Our individual morality, the values and beliefs we might normally
hold, can be stifled by our adoption of the values and beliefs embedded in our work role.
A great example of this is the Stanford prison experiment by Philip Zambardo.

• People adopt the roles they are assigned to
• Adopt behavior different than what they exhibit in ‘normal’ life
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Bureaucracy
Bureaucracy — suppresses morality by ‘freeing’ the individual from moral reflection and decision
making. It is a type of formal organisation based on rational principles, and characterized by
detailed rules and procedures, impersonal hierarchical relations, and a fixed division of tasks.
Bureaucracy has said to have various negative effects on ethical decision making, such as:
• Suppression of moral autonomy
• Instrumental morality
• Distancing
• Denial of moral status
Lesson #6
(Un)ethical behaviour in organisations is largely influenced by behavioural issue-related factors:
• Framing
• Moral intensity
Organ donation
The reason why some countries don't donate their organs as the fine print written when applying
for a driving license says ‘check the box below if you want to participate in the organ donor
program. Whereas countries with higher rates have the opposite message.
Framing
Framing — the ‘strategic’ use of language to alter meaning and/or behaviour.
Moral framing — the use of language to expose or mask the ethical nature of certain decisions.
• Moving production to Bangladesh and paying taxes in Luxembourg? Why call it tax or regulation
avoidance? Frame it as a story of free markets.
• Firing employees? Corporate restructuring or massive lay-offs?
• Military metaphors: “in a war with our competitors”
• Students: “I copy and pasted work onto my assignment” vs “I plagiarised”
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Language is very powerful in aiding decision making.
Moral intensity
Moral intensity — the relative importance (intensity) of the ethical issue depends on:
• Magnitude of consequences (expected sum of harms/benefits)
• Social consensus (do people agree that it is unethical?)
• Probability of effect (will the harms/benefits actually happen?)
• Temporal immediacy (when will we see the consequence?)
• Concentration of effect (who bears the consequences?)
• Proximity (feeling of ‘nearness’) — social, cultural or psychological
Lesson #7
You can intervene to change (un)ethical practices in organisations
• Social accounting: first measure, then manage
• Business ethics management
• Designing effective codes of conduct
• Using behavioural insights
• Manage the formal and the informal organisation
Business ethics management

Business ethics management — the direct attempt to formally or informally manage ethical issues
or problems through specific policies, practices and programs.
• Mission or value statements

• Codes of ethics/conduct
• Reporting and advice channels
• Ethics managers, committees, and consultants
• Ethics education and training
• Stakeholder consultation/partnership
• Social auditing, accounting, and reporting
Changing the context —> making better environments.
Social accounting
Social accounting — the process concerned with assessing and communicating organisational
activities and impacts on social, ethical, and environmental issues.
Factors that distinguish social accounting from conventional accounting:

• Focuses on issues other than financial data
• The intended audience extends beyond shareholders
• Typically voluntary rather than mandated
Why social accounting? “You cant manage what you don't measure”.
Codes of ethics
Codes of ethics/codes of conduct — voluntary statements that commit an organisation, industry, or
profession to specific beliefs, values, and actions — and/or that set out appropriate ethical
behaviour for employees.
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• Organisational
• Professional (e.g. honor codes in medicine, law)
• Industry
Making ethics work
• Design codes of ethics realistic with respect to the workplace

• Design specific codes of ethics
Decrease psychological distance

• Reminders make codes salient
• Make it about money, instead of things (e.g. stocks)
• Lead by example: “Directors tend to set the tone for the actions of all employees; something like
parents setting the tone within a family, kids do what their parents DO, not necessarily what they
tell them” (Forbes)
• Manage the systems of rewards, and the organisational culture
Revision Questions
Question 1: Which statement is consistent with egoist ethical theory?
A) Adhering to a set of principles should stop you from acting in way that will otherwise provide
overall net good consequences.
B) No act is ever morally right or wrong in all cases. It will all depend on the act's consequences.
C) Some actions like murder, theft, rape, and lying are wrong of their very nature, the kind of acts
they are. No amount of net good consequences could ever justify them.
D) The end never justifies the means.
Question 2: What are descriptive ethical theories?
A) Descriptive ethical theories are conduct that should be followed in order to have good ethical
practice
B) Descriptive ethical theories are the rules and principles that determine right and wrong for any
given situation
C) Descriptive ethical theories explain why ethical and unethical behavior happens in organizations
D) Descriptive ethical theories are ancient hypothesis‟ on how to create good business practice
E) Descriptive ethical theories give guidelines on how to achieve a good corporate image
Question 3: Which of the following factors shapes the ethical behavior of the members of
an organization?
A) The supervisor’s behavior

B) Organizational culture
C) Code of ethics
D) All of the above
Question 4: Which of the following is an individual factor influencing ethical decision-

making?
A) Moral intensity
B) Moral framing
C) Locus of control
D) Work roles
E) Organizational culture
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Week 5 — Shareholders and business ethics
At the beginning of modern capitalism, and throughout the 19th century, the common pattern of
governing companies was a very simple one. At that time, industrialists, such as Cadburys int he
UK, both owned and managed their companies directly. However, the common pattern in large
corporations today is a separation of ownership and management functions.
This separation is at the heart of modern capitalism: owners no longer have a personal relationship
to ‘their’ corporation, but rather they buy a ‘share’ in the corporation, and expect the managers and
employees of the company to run it in their (and other shareholders’) interests.
The multiplex images of shareholders

As owners of a firm
• “The first and foremost responsibility of business is to make profit…Managers should act solely in
the interest of shareholders” — Milton Friedman
As political actors
• “We only do activist investing. We have a very concentrated portfolio of 14 positions, and we sit
on the board of 10 of them. We are looking to at least double our investment value in a three-
year time period.” — A partner of Kevin Capital
“Investing to curb climate change!” — SRI Climate Guide
Who is a shareholder?
People who buy shares in the corporation and who expect the managers to run it in their interest.
Part 1: The who?

• In 1990s, the shareholders were the owners of the
business and that’s all that mattered
• In the late 1990s/2000s, it extended to a much broader
network such as including managers and employees
• Later, more stakeholders were involved such as shown on
the diagram to the left
Part 2: The how?
Supervision
Goal definition
Control
Sanctioning
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The changing face of boards

In the 1980s and 1990s, board members were over-viewers — typically white and obese
gentlemen . However, in the beginning of the 1990s, the board of directors began to change.
What do shareholders want?

Shareholders’ rights
• The right to sell their stock

• The right to vote in the general meeting
• The right to certain information about the company
• The right to sue the managers for (alleged) misconduct
• Certain residual rights in case of the corporations’ liquidation
Most notably, these rights do not include the right to a certain amount of profit or dividend; this is
not only subject to the effort and skill of the management but is also — even if the company is
profitable — dependent on the decision of the other shareholders in the general meeting.
Managers’ duties
Managers are entrusted with the duty to run the company in the interest of shareholders. This
general duty breaks down into various more specific duties:
• Duty to act for the benefit of the company — in terms of short-term financial performance and
long-term survival of the company. It is for the shareholders to decide at which level they want
the company to perform; however, managers have a considerable amount of discretion in
actually implementing this duty.
• Duty of care and skill — living up to this duty implies that managers seek to achieve the most
professional and effective way of running the company.
• Duty of diligence — refers to the expected level of active engagement in company affairs.
Consequently, this is the broadest way of establishing pressure on managers to invest every
possible effort in running the company in the most successful way.
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Enron Scandal — plummeting shares
• $90 to $1 in months (2000-2001)

• Largest corporate bankruptcy in the US
• Management were found to have adopted
fraudulent accounting practices to misguide
shareholders in over a decade
• What did they do? What was the motives?
• Enron managers (skilling, COO; Fastow, CFO)

• The investment bank (Merrill-Lynch)
• The auditor (Arthur Anderson)
Corporate governance
Corporate governance describes the process by which shareholders seek to ensure that ‘their’
corporation is run according to their intentions. It includes processes of goal definition, supervision,
control, and sanctioning.
In the narrow sense it includes shareholders and the management of a corporation as the main
actors; in a broader sense it includes all actors who contribute to the achievement of stakeholder
goals inside and outside the corporation.
Shareholder-manager: a principal-agent relationship

The principal-agent relationship is an arrangement in which one entity legally appoints another to
act on its behalf. The relationship is called the “agency”. This is known as an agency dilemma.
Agency dilemma
Misaligned goals
There is an inherent conflict of interest between shareholders and managers. Shareholders want
profits and increase in share price, which require major effort onto part of managers, and may
suggest low salaries. On the other hand, managers want to have high salaries and might pursue
power and prestige to the detriment of shareholder value.
Information asymmetry
When one party in an exchange has an information advantage.
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The party with misaligned goals and an information advantage have a motivation to use that
advantage to exploit the other party. An example is getting your car repaired — the seller may
know more information than you and may use this to get more money (e.g. tells you you need a
special part that you don't even know the name of).
It is the combination of both conflict of interest and informational asymmetry that makes
shareholder relations with managers, and the whole issue of corporate governance, so precarious.
Ethical issues in corporate governance
Insider trading
Some investors might have superior
knowledge in the market. Insider trading
occurs when securities are bought or sold on
the basis of material non-public information.
The executives of a corporation and other
insiders know the company well, and so might
easily know about events that are likely to
have a significant impact on the company’s
share price well in advance of other potential
traders. Consequently, insiders are privileged
over other players in the market in terms of
knowledge, a privilege that they could take
advantage of to reap a questionable profit.
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Remuneration
The financial crisis of the late
2000s brought the issue of
executive pay centre stage in
an unprecedented fashion,
given that executives of
bankrupt or failing companies
continued to earn millions in
salaries and billions in
bonuses. The general trend
towards million dollar salaries
has been fueled by the
revitalization of the
shareholder value ideology,
combined with the massive
privatization move in the late
1980s and orly 1990s, which
saw the remuneration enjoyed
by bosses of formerly public
companies skyrocket.
Overboarding
The concept of “overboarded” or “overboarding” refers to a
director who sits on an excessive number of boards.
Directors are considered over-boarded if they sit on a
number of boards which could result in excessive time
commitments and an inability to fulfill their duties.
Increasingly, companies consider concerns about over-
committed directors and some have adopted policies
limiting the number of boards on which their directors may
serve.
Length of time on the board
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Executive accountability and control

There are various solutions to the problem of shareholder-manager relationships:
• Make information less asymmetric
• Change the incentives to align the interests of principals and agents
Board of directors
A separate body of people that supervises and controls management on behalf of shareholders.
Directors can come in two forms:
• Executive directors — these are responsible for running the corporation.
• Non-executive directors (independent directors): ensure that the corporation is being run in the
interests of the shareholders.
Non-executive directors can only be able to reasonably act in the principal’s interest if they have no
directly conflicting interests. In order to achieve this, a number of points are important:
• Drawn from outside the corporation; no personal financial interest in the corporation
• Appointed independently
• Appointed for limited time
• Competent to judge the business of the company
• Should have sufficient resources to get information
Financial intermediaries
Banks, credit rating agencies Auditing firms
The task of financial intermediaries is to provide a ‘true and fair view of the firm’ (i.e. to bride
informational asymmetry).
What gets in the way…

• Conflict of interest (e.g., cross-selling of Arthur Anderson)
• Competition between firms (e.g., Merrill-Lynch)
• Long-term relationship with clients
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Seeking self-interest — shareholder activism

When not all shareholders’ voices are heard, shareholders act on this. One of the potential levers
with which to make corporations accountable for their ethical behaviour is to buy shares in that
company. The motive for doing so in this case is not so much to make a profit or to speculate on
the market, but to make positive use of the rights of shareholder democracy.
Shareholder activism is a way in which shareholders influence a corporation’s behaviour by

(“politically”) exercising their rights as owners.
 
The strategy
1. Identifying companies that are underperforming their potential
2. Campaigning for unlocking the value (typically via mergers, spin offs,
restructuring)
• North American activist hedge funds manage $107 billion

• Growing trend in Europe as well: targeting nearly 100 firms a year
• Icahn: net worth 16.7 billion, has a stake in Apple
Mergers & Acquisitions (M&A)

From a societal point of view, mergers and acquisitions might be encouraged if they involve the
transfer of assets to an owner who will use them more productively and thereby create wealth, and
value for shareholders. In reality, 35% of M&A deals created such values.
Managers may pursue goals misaligned with shareholder interests:

• Managers: power, esteem, remuneration
• Shareholders: profit, share price  
When acquiring another company, managers get:

• More power
• Higher esteem
• Higher compensation
When being acquired, managers often:

• Lose esteem and compensation (due to restructuring and downsizing)
• Lose power
Hostile takeovers
A hostile takeover is an acquisition in which the company being purchased doesn't want to be
purchased. It only works with publicly traded companies, however. It is accomplished by going
directly to the company’s shareholders or fighting to replace management to get the acquisition
approved.
On one side, it could be argued that hostile takeovers are ultimately possible only because
shareholders want to sell their stocks; otherwise they would keep them anyway. On the other side,
an ethical concern may arise with the remaining shareholders that do not want to sell.
ABN takeover
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2007: RBS led a consortium in acquiring ABN

• £50bn deal, the world’s largest ever bank takeover
• 70% premium
2008: Capital required to fund the deal placed a huge strain on RBS’ assets had to be bailed out
by the UK government
2017: £7bn loss, ninth year of loss in a row, total loss of £58bn since 2009
Shareholders seeking public interest

Buy shares in company for right to speak at the AGM
• Challenge the management on unethical practices
• Get media attention by ‘disrupting’ the meeting
PETA owns shares of 56 firms for activist purposes

• Filed resolution urging P&G to stop animal testing on cosmetics
• P&G eventually phased out animal testing not required by law
Socially Responsible Investment (SRI)

Socially Responsible Investment (SRI) — the use of ethical, social and environmental criteria in the
selection and management of investment portfolios (i.e., company shares).
SRI is further removed from the corporation and certainly less active than confronting managers
head-on at AGMs. However, with the general public apparently getting increasingly concerned
about corporate accountability, a large and rapidly growing body of shareholders has emerged who
specifically include ethical concerns int here investment decisions.
In contrast to shareholder activism, socially responsible investors do not directly use their
investment to make their companies listen to their concerns and subsequently change their
behaviour. Rather, they look for a profitable investment that at the same time complies with certain
ethical standards.
Criteria for socially responsible investing

The criteria for choosing an investment can either be negative or positive. Investors can choose to
exclude certain companies with undesired features or adopt companies with certain desired
features. These are the most common types of issues for both criteria:
Negative criteria Positive criteria
• Alcoholic beverages production and retail • Conservation and environmental protection

• Animal rights violation • Equal opportunities and ethical employment
• Child labour practices
• Companies producing or trading with oppressive • Public transport
regimes • Inner city renovation and community development
• Environmentally hazardous products or processes programmes
• Genetic engineering • Environmental performance
• Nuclear power • Green technologies
• Poor employment practices
• Pornography
• Tobacco products
• Weapons
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LeisureNet Ltd
A principal-agent relationship
Principals: Agents
shareholders
Conflicts of interests
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Week 6 — Employees and business ethics

Recap question and debate
Utilitarianism
Ethics of rights and

justice, Kantian ethics
Employees as stakeholders
Employees take on a peculiar role among stakeholders as they are closely integrated into the firm.
Employees ‘constitute’ the corporation. They are perhaps the most important production factor or
‘resource’ of the corporation, they represent the company towards most other stakeholders, and
act in the name of the corporation towards them. This essential contribution, as well as the fact that
employees benefit from eh existence of their employers, and are quite clearly affected by the
success or otherwise of their company, are widely regarded as giving employees some kind of
definite stake in the organisation.
Employee rights
Employee rights are worker’s entitlements with respect to their employer, based on a general
understanding of human rights and often codified in employment law. These include:
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

• Work-life balance
• Presenteeism
• Electronic privacy and data protection
Right to due process • Promotion

• Firing
• Disciplinary proceedings
Right to participation and association • Organisation of workers in works councils and trade
unions
• Participation in the company’s decisions
Right to healthy and safe working conditions • Working conditions

• Occupational health and safety
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Right to fair wages • Pay

• Industrial action
• New forms of work
Right to freedom of conscience and speech • Whistleblowing
Right to work • Fair treatment in the interview

• Non-discriminatory rules for recruitment
Discrimination
Discrimination in the business context occurs when employees receive preferential (or less
preferential) treatment on grounds that are not directly related to their qualifications and
performance in the job. The most common bases for discrimination in the workplace are:
• Race
• Gender
• Age
• Religion
• Disability
• Nationality
However, any factor that is unrelated to job performance might also be used to discriminate against
employees, including:
• Marital status
• Physical appearance
• Sexual orientation
• Gender reassignment
Example: Euro Disney goes on trial for alleged hiring discrimination
The Euro Disney group went on trial in France on Wednesday (published 25 May 2016) for
publishing an allegedly discriminatory job ad a decade ago requesting that candidates have
“European citizenship” to work as parade as parade artists at its famous Disneyland Paris theme
park.
Employee privacy
The prospect of companies invading employees’ privacy has become an increasingly pressing
issue in the contemporary workplace. The escalation in health, drug, alcohol, even genetic testing
of employees, coupled with the possibilities for more and better surveillance through advances in
information and communication technologies, has meant that employee privacy has never been so
much under attack. Privacy can take place in the forms of:
• Physical privacy
• Social privacy
• Informational privacy
• Psychological privacy
Dayton Hudson Corporation

 
Pre-employment survey for security guard positions
• I feel sure there is only one true religion
• I believe in the second coming of Christ
• I have never indulged in any unusual sexual practices
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The company eventually conceded in court that asking such intimate questions constituted an
invasion of privacy.
Due process and lay-offs

Many employees are constantly at risk of losing their jobs for relatively minor indiscretions,
personality clashes, or simply because their face ‘doesn’t fit’. The right to due process — the fair
treatment through the normal judicial system, especially a citizen's entitlement to notice of a charge
and a hearing before an impartial judge — has a long history in working practices. Promotion,
disciplinary proceedings and firing are the most common processes where the right to due process
is particularly important.
With increasing moves towards restructuring and flexibilisation, however, the need of employees in
lay-off situations have moved beyond merely involvement and remuneration to retraining and re-
integration into the workforce. Many employees are increasingly been exposed to the need for
occupational transitions — i.e. having to find work in completely new industries. Such
developments have raised new expectations on corporations, particularly in respect to developing
‘outplacement’ strategies to help employees find work following lay-offs.
Amazon UK workers
When Amazon UK was first set up, people thought this would be a great job opportunity. However,
they soon realized that its treatment of employees wasn’t very fair. Work consisted of a zero hour
contract, with usually 10 minute lunch breaks, short working hours notices and very strict
regulations to follow. Many employees started to realize that Amazon would fire temporary
employees after their 12th week so that they wouldn't have to be given the same rights as full-time
employees. This angered many of the local citizens.
Employee participation and association

The recognition that employees might be more than just human ‘resources’ has given rise to the
claim that employees should also have a certain degree of influence on their tasks, their job
environments, and their company’s goals — i.e. right to participation. The key issue isn’t much
whether employees should have a right to participate in decisions, but whether to what degree this
should take place. The right to participating can take place in one of two forms, including financial
participation or operational participation.
It must also be considered whether employees have a ‘right’ to join together in organisations —
which is framed in terms of right to association. The crucial factor here is that employees often lack
an effective form of representation of their interests to employers, leaving them in a far weaker
position than management in bargaining over pay and conditions.
Working conditions
The right to healthy and safe working conditions has been one of the very first ethical concerns for
employees. Today, most industrialized countries have implemented a dense network of health,
safety and environmental (HSE) regulation that companies have to abide by. The main issue,
however, often becomes the enforcement and implementation of existing regulation. Some
companies may cut corners on health and safety.
Walmart
The National Labor Relations Board says Walmart illegally fired, disciplined or threatened more
than 60 employees in 14 states for participating in legally protected activities to complain about
wages and working conditions as the nation’s largest retailer.
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Work-life balance
In comparison to having good working conditions, employees are facing an increasing incursion of
working hours into their social life. There has been a growing pressure for longer hours in (and
traveling to) the workplace. These problems are even more pronounced in developing countries, as
with the dormitory labour system in China, where many workers from the western provinces leave
their families to work in factories in the East, living in poor conditions and in dormitories.
Clearly, a ‘healthy’ balance between work and private life — or ‘work-life balance’ — is difficult to
maintain. Their may be the difficulty of childcare, maintaining long distance/weekend relationships,
finding time and energy to socialise. Two of the most important issues in work-life balance include
excessive working hours and presenteeism (being at work even though you should be at home e.g.
from sickness) as well as flexible working patterns.
Fair wages
As with most rights discussed, the right to a fair wage is to some extent protected through
regulation in many countries. This certainly applies to lower incomes — e.g. minimum wage, which
is now common in many countries.
The basis for determining fair wages is commonly the expectations placed on the employee and
their performance towards goals, measured by hours worked, prior training, risks involved,
responsibility for assets, meeting of targets, etc. However, jobs are valued very differently in some
employment markets compared to others.
Economic Policy Institue (EPI): CEO pay
• In 1965, CEOs on average earned 20 times than the average employee

• By 1978, CEOs earned just less than 30 times the average worker
• By 1989, the divergence grew to 59 times and by 1995 it was almost 72 times
• By 2014, the EPI suggested that the ratio was 313 times the average worker compensation
Freedom of conscience and freedom of speech in the workplace

Normally, these rights are guaranteed by governments and so individuals can usually count on the
to protect these rights. However, within the boundaries of the firm, there might also occur situations
where these rights, especially freedom of speech, might face certain restrictions. This is the case
with regard to, for example, speaking about ‘confidential’ matters regarding to the firm’s R&D,
marketing, or accounting plans that might be of interest for competitors, shareholders or other
stakeholders.
The right to work

The right to work has been codified as a fundamental entitlement of human beings. As such, the
right to work is derived from other basic human rights, e.g. the right to life and to human aspect.
The right to work in a business context cannot mean that every individual has the right to work.
Rather than granting everybody employment, the right to work should result in the claim that every
individual has the same right to be employed, they are all entitled to the same rights in the process
of exerting this fundamental right.
Globalisation and employee rights

There is a widening grey zone of ethical issues beyond those covered by law, and the area of
employee stakeholders is probably one of the fastest-growing parts of this zone. This is chiefly due
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to globalisation and its effect on nation states’ abilities and willingness to regulate and enforce the
protection of employees.
Employing people in countries with dubious working conditions is a major area of concern. For
example the low wages and the poor safety conditions. This is increasingly occurring in low-income
economies, e.g. workers in China.
Are there universal employee rights, or…is it all relative? How should a company decide?
Human rights should be used as a basic compass (UN universal declaration of Human Rights). No
matter what the case, if it violates human rights, the case should be considered unethical.
Employee duties
Employee duties are obligations of workers towards their employer, based on individual contracts
and wider employment laws. Obligations to…
• Comply with the labour contract e.g. achieve an acceptable level of performance
• Respect the employer’s property e.g. appropriate use of company time and resources
• Refrain from illegal activities e.g. fraud, theft, embezzlement, bribery
Managing employee ethics: explaining employee misconduct

The Ford Pinto case: the organisational culture at Ford — the company
culture was about cutting corners to have a less costly car.
Peer effects
Dan Ariely’s in-group/out-group experiments
He ran an experiment where he gave people a sheet of paper with

mathematical questions and told them to do as many questions as they
could, shred the paper, tell him how many questions they answered,
and then he would give money in return for how many questions
answered. He hired an actor (student) who would get up after 20
seconds and scream “I finished”! Who would then get his money and leave
the class. This showed the class that there is no punishment for cheating as someone else already
did it. The study was done at Carnegie Mellon University: when the actor had the sweatshirt with
the Carnegie Mellon logo, more people cheated, however, when he wore a sweatshirt with the
University of Pittsburgh logo, less people cheated.
This demonstrates “group (peer) identification” —> organisational identification
Incentives
Rationalization (examples)
• “It’s standard practice”
• “It’s not a big deal”
• “It’s not my responsibility”
• “I want to be loyal”
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Interventions
Value reminders
• Recall the ‘ten commandments’ and ‘honour code’ experiments
• Write your own values or codes of conduct
Exposing superiors to moral symbols
A study that shoes how employees can be affected by the behavior of superiors.
• Email signature bottom: “Success and luck go hand in hand.” / “Better fail with honor than
succeed by fraud”
• A T-shirt advertising a website, “YourMorals.Org" / “YourMoney.com"
Reporting misconduct: when others are ‘bad’

Why do we remain inactive when we see something wrong?
• From peer effects to the bystander effect
• Bystander effect and reporting misconduct
The smoke filled room study: bystander effect vs. peer effects
Someone is sat in a room and a “fire” starts in the room. Alone, she leaves the room but keeps her
belongings there. However, when a person is surrounded by other people and a “fire” starts, she
does nothing for about 10 minutes as no one else is doing anything about it. In the case of a real
fire, she would have died.
Whistleblowing
Whistleblowing — the acts by employees to expose their employers for perceived ethical
violations.
The main problem, for employees with whistleblowing is the fact that it involves a considerable risk
for the. As they violate the confidentiality that would normally be part of their duty of loyalty towards
the rim, they put their job and thus their economic security at risk.
• Wendy the ‘wildcard’

• Framed as an outlier — only woman in her group: gave her a reason to speak up against the
issue, all other employees were excluding her
• Tried to speak up internally but was pushed away
• Next step was attempting to solve the issue externally
• Formal investigation team came to the office and told everyone to leave their desks as they were
so they could carry out an investigation
• Eventually she was fired due to this — death threats also came to her, from emails to phone calls
etc
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Technically competent but who measured their moral competence?
Culture of Collusion + Complicity
The policy of effectively ignoring the message and the messenger has really brought large flocks of
South African chicken come home to roost.
Shimmering
“The figures for 1999 had been

restated, thereby confirming the
accounts of many years were no
more than fairy tales. A profit of
R109,5m turned into a loss of R46,8m
and shareholders’ funds of R610m
were reduced to about R157m.”
Hubris
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Language is a very important indicator to attitudes, principles and honor codes. Hubris is the denial
of risk in peril.
What were the checks and balances in the system? Fear or favor
Reasons why some might not speak up:

• Fear-driven individuals
• People don't like loss
Speaking up isn't easy to do.
Final verdict: 2011
The whistleblowers’ dilemma and trade off

Imagine that you witness a colleague embezzling from the university/workplace. How likely would
you be to report the perpetrator of this incident?
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• Twentieth-century rule-making procedures won’t stand up to twenty-first-century pressures

• Policies and rules need to be shaped more closely around our inbuilt responses to the world and
the environment within which we respond
• There is a need to shift the emphasis from enforcing compliance to skilling for the capacity to
voice
• Rules won’t create a Culture of Candor but building a Climate of Voice that crafts and supports
candor makes it easy and natural to obey the rules
The shame and regret of remaining silent
Many believe that it is best to stay silent rather than risk speaking up. However, this can stay with
people for years and create a burden with everything that you do. Many employees employed in a
company who was involved in whistleblowing said that they wished they said something when they
had the chance.
Retaliation
A cognitive-emotional model of retaliation against whisteblowers
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Week 7 — Consumers and business ethics

Consumers are obviously one of the most important stakeholders for any organisation, since
without the support of customers of some sort, such as through the demand for or purchase of
goods and services, most organisations would be unlikely to survive for very long.
Consumers’ rights
Consumers have inalienable entitlements to fair treatment when entering into exchanges with
sellers. They rest upon the assumption that consumer dignity should be respected, and that sellers
have a duty to treat consumers as ends in themselves, and not only as means to the end seller.
These rights include:
• The right to safe and efficacious products

• The right to fair prices e.g. EpiPen
• The right to honest and fair communications e.g. McDonalds being dishonest about what is in
their food
• The right to privacy e.g. Phorm’s advertising targeting service — using customer information to
build a customer profile and use this information to create ads
Dynamic pricing/price discrimination

Dynamic pricing is the practice of selling identical goods or services at different prices from the
same vendor.
Dynamic pricing means that seats on a particular flight are priced differently according to the level
of demand for the seats still to be sold. The higher the demand for the seats, the more
expensive they are likely to be.
Demand tends to get stronger as the flight gets closer to departure so prices will tend to go up. We
always suggest to book as early as possible as you are more likely to get a lower priced seat
compared to if you waited. E.g. easyjet.com
Why do businesses adopt dynamic pricing?
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Puzzles
Puzzle 2: When relocating to the UK last summer, I paid $1400 for one-way trip (Toronto-London);
return ticket at the same time was $1200.
Explanation:
• One ways are usually flown by business traveler or people with the money to do that (i.e. higher
value passengers)
• Pricing is used to extract maximum revenue from these passengers (tripadvisor.com)
Customer profiling: fully customised pricing
However, dynamic pricing can also be seen from another view.
Dynamic pricing is the practice of pricing items at a level determined a particular customer’s
perceived ability to pay.
Loyalty programs
• Help the airline profile customers as a business traveller, or a poor student (or other categories)
• A business traveller will be consistently shown higher fares
• A student is likely to be shown lower fares
Seat upgrade auction

• “Encourage” passengers to tell the airline how much they’re willing to pay for premium services
Ethical debate: customer algorithm
A friend recently started working as an analyst at a big online travel agency. In a casual chat, you
learned that his firm uses a powerful background algorithm in its pricing, tactics including:
• Customers who shopped at Morrisons or H&M will be shown lower prices than those who
shopped at Waitrose or Anthropologie
• Customers who searched for “credit card debts” will be shown a lower price
Also, the website changes the price several times a day, to diminish the customer’s ability to
predict price, so as to induce the anxiety. Anxious customers are more likely to book immediately.
Do these practices violate your rights as a consumer? (If yes, which rights are violated?)
Consumer activism
Consumer boycotts
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A boycott is an attempt by one or more parties to achieve certain objectives by urging individual
consumers to refrain form making selected purchases in the marketplace.They can:
• Reduce sales
• Damage the legitimacy of a product
• Damage a firm’s reputation
• Sometimes lead to a policy change
Foie gras and consumer boycotts
• A luxurious delicacy
• A centuries-old French tradition
• An immoral product that inflict torture upon defenceless animals
• “Murderous meat production”
Foie gras production is illegal int he UK and more than a dozen European
countries (e.g. Germany, Luxembourg and the Netherlands). It was
recently banned in Brussels: Brussels’ Minister for Animal Welfare said,
“[Foie gras production] is truly a kind of torture imposed on ducks, and
we can hardly tolerate it”.
Even when it is legal, some retailers no longer sell it. Many celebrities also
avoid being associated with foie gras. For example, celebrity chef Nigella
Lawson vehemently denied a newspaper report suggesting that she
bought the controversial French delicacy from Jack O’Shea, a prominent
butcher.
Boycotting Ivanka Trump
Nordstrom, Neiman Marcus stopped carrying Ivanka Trump’s line of clothing, shoes and jewellery,
citing poor sales.
Ethical issues in marketing

The marketing mix
Product policy
• What does the customer want from the product?
• What features does it need to have to meet these needs?
• How is it different to the offering of competitors?
Marketing communications
• How do you get messages to the target market?
• What are the right messages to convey?
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Pricing
• What is the value of the product or service to the buyer?
• Is the customer price sensitive?
• How will the price compare to those of competitors?
Distribution
• What are the right distribution/retail channels?
• Which countries are targeted?
Why are we talking about ethics of marketing?

Ethical challenges: examples
Product policy
• Potential harm caused by the product
• Influencing customer’s behaviour producing undesirable outcome
• Communication to vulnerable customers (e.g. children)
• Risk of misleading or false claims
Pricing
• Potential harm caused to certain customers by price decisions: vulnerable customers
• Impact of prices down the supply chain
Distribution
• Potential cultural issues within international markets
• Apply different quality standards in different markets
Responsible marketing
It implies a value-led approach, not maximising short term profits

at all costs.
Building trust
For the first time in four years,

less than half of the British public Company’s social media are
(48%) trust British business to considered more believable
behave ethically. than advertising by 62% of
IBE Survey of the Attitudes of British Public respondents.
to Business Ethics 2016
Post-truth: ‘circumstances in which 64% of them find leaked

objective facts are less influential information more believable
in shaping public opinion than than company’s press
appeals to emotion and personal statements.
Edelman Trust Barometer 2017
belief’
Oxford Dictionary Word of the Year 2016
Ethics goes beyond the law
• Legal position of a business: what it has the right to do

• Ethical responsibility of a business: what is right to do
Remember: what is legal isn’t always ethical.
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What are the ethical issues in marketing?

Product policy
Customers have the right to be protected from any potential harm caused by
the product. Many every day products that are bought or used can potentially
harm, injure, or even kill people, especially if they are used improperly. It is in
both the buyer’s and seller’s interest for products to not harm consumers.
Responsibility for:
• Health and safety
• Impact on behaviour
• ‘Educate’ customers
Mars Food’s approach
• “Consume only once a week”

• Distinguish between “everyday” and “occasional” items on packs and website
• This is not a law, but as an ethical business they decide to have that
Ethical issues can be broken down at both the individual level and social level. At the
level of the individual consumer, the concern of misleading or deceptive practices has
been addressed.
Responsibility for (individual level):

• Avoiding misleading claims (e.g. ‘natural flavours and colours used’)
• Avoiding ‘stealth marketing’ — advertising a product without consumers knowing they
are being marketed to
• Respect of customer’s privacy and responsible use of personal data (limit
intrusiveness e.g. targeted ads)
On the other hand, on the social level, the main concern is the aggregate social and
cultural impacts of marketing communications. Hence, companies also need to be aware of the
potential influence that their communication can have on society and collective behaviour.
For example, the UK Advertising Standards Authority requires advertisement to be legal, decent,
honest and truthful.
Responsibility for:
• Not reinforcing negative stereotypes
• The creation of artificial wants that lead people to spend more than they can afford
Pricing
Customers have the right to a fair price. Pricing issues are central to the notion of a fair exchange
between the consumer and the producer, as consumers want the cheapest price but producers
want to have the highest revenue.
Responsibility for:
• Clear and transparent pricing
• Good price/quality balance
• Avoiding ‘predatory pricing’
• Avoiding collusion and ‘price fixing’
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The four types of pricing practices that involve ethical issues include:
• Excessive pricing (or price gouging) — the charge of excessive pricing rests on
the assumption that the fair price for goods and services has been exceeded.
They are usually set significantly above competitive levels as a result of
monopoly or market power.
• Price fixing — a practice whereby rival companies come to an illicit agreement

not to sell goods or services below a certain price. This occurs as a result of
collusion between competing firms to fix prices above the market rate.
• Predatory pricing — when a firm adopts the opposite course of action, and rather than charge
above the market rate, sets price significantly below the market rate in order to force out
competition.
• Deceptive pricing — this can also occur when firms price in such a way that the true cost to
consumers is deliberately obscured (mentioned above).
For example, Nurofen was taken off the shelves in Australia as it was supposedly selling two
“different” types of tablets which in fact had the exact same ingredients, but just had different
packaging.
Distribution
Companies need to be aware of potential ethical dilemmas when choosing distribution channels.
Many issues can arise between manufacturers and there firms which deliver their products to
market, such as wholesalers, logistics firms and retailers (product supply chain).
Responsibility for:
• Partnering with distributors that share similar ethical values
• Considering local values and cultural sensitivities
• Applying similar high ethical standards across the board, avoiding lowering standards in some
countries just because the law allows it
For example, according to the

company Fair & Lovely, 90% of
Indian women want to use whiteners
because it is “aspirational… a fair
skin like education, regarded as a
social and economic step up”
What can companies do?

Responsible marketing policy
“The Coca-Cola Company is committed to the responsible marketing of our products.

The Company has a history of aligning its commercial practices with our sustainability
goals, our business goals, and our values.”
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4 principles from our Responsible Marketing Strategy
1. Choice — provide a range of beverages to support consumers in making sensible choices to

suit balanced diets and active lifestyles.
2. Balance — encourage sensible consumption and moderation.
3. Honesty — ensure honesty and transparency in all marketing and sales activity.
4. No marketing to children — do not market any products to children under 12.
Marketing controversial products
“At British American Tobacco we believe in upholding high standards of

corporate behaviour. We agree that the tobacco industry should be regulated,
but we also think we should be able to communicate in a responsible way with
adult tobacco consumers about our products, in order to grow market share.”
4 principles from our Responsible Marketing Strategy
1. Our marketing will not mislead about the risks of smoking.

2. We will only market our products to adult smokers.
3. We will not seek to influence the consumer’s decision about whether or not to smoke, nor how
much to smoke.
4. It should always be clear to consumers that our advertising originates from a tobacco company
and that it is intended to promote the sale of our tobacco brands.
Responsible marketing training
However, having a policy is important, but not sufficient. Companies need to make sure that the
principles included in the policies are effectively applied.
Example: Heineken and Realise Consulting
• Found creative ways to bring their policy to life

• Asked Realise Consulting to help create their responsible marketing code in an engaging way
• Comical scenarios used, but the result were bad
• Within 2 months, staff had learned e-learning
Ethical consumption
Ethical consumption is the conscious and deliberate choice to make certain consumption choices
due to personal moral beliefs and values.
Ethical consumption can take the form of boycotts, buying cruelty-free products, recycling
products, etc. However, it can be difficult to sum up the full range of activities included in this. What
makes a consumption decision driven by moral beliefs different from one that isn't is that ethical
consumption is about decisions beyond self-interest.
There is much evidence to suggest that many consumers do indeed include ethical considerations
in their evaluations of businesses and the products they sell. For example, a recent 51-market
survey on consumer attitudes found that 70% of global consumers said their purchase decision
could be influenced buy a product supporting a worthy cause.
However, ethical consumption is never going to be an adequate replacement for political action —
even if the latter appears to be falling out of favour as the former becomes more mainstream. It
does, however, show us that consumers are now important actors in the regulation and shaping o
business ethics.
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Week 8 — Suppliers, competitors and business

ethics
Competitors as stakeholders
Why are competitors an important stakeholder group for an
organisation?
Competitors are rarely referred to as stakeholders and are often known as the ‘forgotten
stakeholders’. This is because they are typically seen as being in an ongoing, zero-sum battle with
each other for customers, resources and other rewards. So why should organisations accord their
competitors any specific ethical claim when they are battling for the same rewards?
However, businesses should not be seen as isolated islands of economic activity, but as actors
operating within a web of other businesses, bound by mutual interests and interlinked flows of
resources and rewards. This suggests that firms are probably best understood as part of an
industrial network, rather than just as part of a simple exchange between two parties. Whilst the
ethical obligations the firm has to these other network members might vary, this does not deny the
fact that they all have some form of stake in the decisions made — and may act upon that stake in
ways that are of consequence to the organisation.
Competitors’ impact on the organisation

• E.g. market share, trading conditions, collective reputation
Competitors affected by the organisation

• E.g. right to privacy, right to fair competition
Ethical issues and competitors

There are many ethical issues which can arise between competing companies. They
can relate to two distinct problems:
• Overly aggressive competition — where a company goes beyond acceptable

behaviour in its direct relationship with a competitor, thereby harming the
competitor in a way that is seen as unethical.
• Insufficient competition — where the actions of one or more companies acts to restrict
competition in a market, thereby harming consumers in a way that is seen as unethical.
Overly aggressive competition

In a competitive global marketplace, firms are expected to act aggressively in trying to secure a
competitive advantage against their competitors. However, sometimes, this behaviour goes beyond
the ethical boundaries of acceptable competitive behaviour — for instance, when competitors
engage in spying, dirty tricks, and anti-competitive practices.
Intelligence gathering and industrial espionage
All organisations collect and make use of some kind of information about their competitors. Indeed,
such intelligence-gathering activities are very much a standard aspect of conventional market
research and competitor benchmarking, and make for effective competitive behaviour. These can
include:
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• Breaking and entering a competitor’s offices

• Installing tapping devices
• Hacking and stealing intellectual property e.g. Apple cyber attack
• Using data collected by former employees e.g Google car
• Misrepresentation — e.g. posing as potential customer/employees
• Searching through a competitor’s rubbish
 
Example: Google self-driving car unit accuses Uber of using stolen technology
Consider the ‘ethicality’ of getting information from competitors’ rubbish through the lens of…:
• Egoist theory of ethics: would be considered ethical (looks at the potential cost, time spent, loss
of reputation and if these benefits are higher than costs then they'll do it)
• Utilitarian ethics: would be considered unethical (if the benefits of a company exceeds the cost to
competitor they'll do it)
• Kantian ethics: would be considered unethical (thinking of the universal law which is consistently
applied — if every starts doing it then the industry will lose out overall)
‘Dirty tricks’
Overly intense competition can also lead to questionable tactics beyond just stealing secrets and
spying on competitors. A more generic term often used in the business world to describe the range
of morally dubious practices that competitors occasionally turn to in order to outdo their rivals is
‘dirty tricks’. In addition to industrial espionage, dirty tricks can include various tactics among them:
• Stealing customers — where a rival’s customers are specifically approached in order to

encourage them to switch suppliers, often using underhand method such as misrepresentation,
providing false information, bribery, or impersonating the competitor’s staff.
• Sabotage — this can take many forms, but basically involves direct interference in a competitor’s
business in order to obstruct, slow down, or otherwise derail their plans.
• Predatory pricing (product ‘dumping’) — involves the deliberate setting of prices below cost in
order to initiate a price war and force weaker competitors out of the market.
• Negative advertising — where the firm deliberately sets out to publicly criticise their competitors,
their products, or any product or performance claims the competitor may have made
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Insufficient competition
Anti-competitive behaviour can obviously also hurt consumers, particularly when it results in
companies being able to abuse their dominance in a market to exploit customers through higher
prices. Sometimes, though, ethical problems arise here not because rivals are overly competitive
with each other, but because competition is reduced by rivals being insufficiently competitive with
each other. Most of such behaviours are precluded by competition law, but the problems of
determining when firms have colluded or abused a position can be difficult to determine.
Collusion and cartels
At the other end of the scale from such intense rivalry, then, is where select groups of competitors
band together in a cartel or trading group to fix prices and other trading arrangements for their own
mutual benefit. It includes:
• Price fixing (e.g., model agencies clouded to dix prices, competition regulator says). This is
unethical because its unfair to consumers who don't have as much money
• Dividing territories
Suppliers as stakeholders
Why are suppliers an important stakeholder group for an organisation?
“A stakeholder is a group or individual that either is harmed by or benefits from the corporation or
whose rights can be violated, or have to be respected, by the corporation”
It is clear that suppliers are stakeholders — they can benefit from the success of the corporation by
receiving orders for products and services and they can be harmed by losing orders. Similarly, we
might easily suggest that suppliers have certain rights that might need to be respected by
corporations, such as the right to a contract, to a fair deal, or to some level of fair treatment or
loyalty.
Indeed, organisations and their suppliers can be seen to be mutually dependent on each other for
their own success: just as suppliers rely on their customers for the orders which keep them in
business, so too do the purchasing firms rely on their suppliers to provide them with the products
and services they need to carry on their operations.
Suppliers’ impact on the organisation

• E.g. sources of products/raw material (price, quality, provenance)
Suppliers affected by the organisation

• E.g. right to a contract, fair deal
Ethical issues and suppliers

Firms have continued to move away from traditional adversarial relationships with suppliers
towards more partnership-based approaches that emphasise long-term relationships with core
suppliers based on mutual trust and collaboration. Evidence suggests that whilst many progressive
firms have indeed moved towards more collaborative approaches, much so-called ‘partnership’
sourcing actually involves problematic power relations and troublesome intra-firm tensions.
Some of the ethical issues involved includes the giving and acceptance of gifts, bribes, hospitality,
and other potential inducements, as well as the use of questionable tactics in business-to-business
negotiations.
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Misuse/abuse of power
The issue of power in buyer-supplier relationships have received much
attention over the years, not least because the relative power of the two
parties can be extremely influential in determining industry profitability.
Clearly, though, imbalances in power can also lead to the emergence of
ethical problems, particularly when any imbalance is misuse to create unfair
terms and conditions for one or the other party.
Imbalance of power is used to…

• Create unfair conditions for the other party, and/or
• Establish an unfair advantage in the marketplace
Power derives from the degree of dependence on the other party:

• Importance (does the buyer need the product or material?)
• Scarcity (are there many availability alternatives?)
Hence, the buyer is more likely to wield considerable power over the supplier when:
• The supplier’s resources are relatively plentiful and not highly important to the buyer; and/or
• The buyer’s resources are relatively scarce and highly important to the supplier
The big four UK supermarkets
Sainsbury’s, Tesco, Asda and Morrisons capture 75% of the market —>
enormous power: “They can dictate the size of an apple grown 6,000 miles
away. A change in the price they are prepared to pay can make or break
farmers.” (the Guardian editorial, 2016).
Consider the ‘ethicality’ of exercising power to excessively reduce your

suppliers’ prices, through the lens of…
• Ethics of rights and justice — “To choose under the “veil of ignorance””: ignorant about place in
society, take the position of the least well off member e.g. supplier in this case. If this person
thinks its just, then its ethical and vice versa
• Egoist theory of ethics — would be ethical as having raw materials for as cheap as possible is an
extreme benefit for supermarket companies.
The abuse of power can lead to reductions in quality, lack of investment, lack of innovation, and
even job losses and industry decline. In this case, overexposure to risk may result in an
underperformance of suppliers. Ultimately, excessive abuse of power may eventually even harm
the powerful partner, particularly if their supplier relations become so dysfunctional as to jeopardise
product quality and industry growth — thereby reducing long-term profitability.
Conflicts of interest
Conflicts of interest are critical factors in causing various ethical problems, not just in relation to
suppliers. However, purchasing and supply-chain management are areas where conflicts of
interest is particularly likely to surface. This occurs when a decision has to be made about whose
interests to advance.
A conflict of interest occurs when a person’s or organisation’s obligation to act in the interests of
another is interfered with by a competing interest that may obstruct the fulfilment of that obligation.
Examples:
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• Conflict of professional interests e.g. Enron

• Conflict of professional and personal interests
• Recruitment
• Bribes, gifts, and hospitality (before/after a deal is concluded)
Organisational conflicts of interest typically occur when a firm is employed as a supplier of

professional services of one sort or another — and hence would be expected to act in their client’s
interest — but this arrangement clashes with another interest of the supplier — perhaps an
arrangement with a competitor to the first client, or even a desire to gain more work from the same
client.
Suppliers and globalisation: selected issues

Different ways of doing business: personal inducements
Gifts, gratuities, hospitality, bribes, kickbacks, bungs, sweeteners — some of these offers may be
innocent, but some will simply be inducements to get business that would not otherwise have been
earned by more legitimate means. Personal inducements are usually made in order to secure
some form of preferential treatment for the supplying company, and typically involve purchasing a
staff in a conflict of interest between their own personal gain and the best interests of their firm.
How can you differentiate between a gift or bribery?
• Intention of the gift-giver — if their intention is to gain an additional advantage (as opposed to
merely offering thanks for a job well done), then we might question the action.
• Impact on the receiver — if their evaluation of the gift giver is enhanced after receiving the gift,
then again we might start to raise some doubts about its ethicality. This is pertinent even when
the gift is received after a deal has been concluded, since it might be seen to prejudice future
evaluations.
• Perception of other parties — if a competing supplier might interpret the giving of the gift as a
deliberate bribe, then again we should probably question the action.
Once a culture of dishonesty has been created, the prevailing ethic in the workplace can be difficult
to dislodge and can be profoundly influential on subsequent behaviour. Although many large
organisations have a formal purchasing code of ethics in place, and guidelines for appropriate
behaviour on issues such as gifts and hospitality are provided by professional bodies such as the
Chartered Institute of Purchasing and Supply, the purchasing function is widely regarded to be
largely unconcerned with ethics and very commercially minded.
Different cultures
Different countries tend to exhibit differing attitudes towards the appropriateness of gift giving
between customers and suppliers. In Chinese cultures, for example, the widespread practice of
‘guanxi’ — a system of personal connections that carry long-term social obligations — places
considerable emphasis on the desirability and acceptability of reciprocal favours and gift giving to
develop and maintain relationships.
What if bribery is endemic?
Multinational businesses are promulgating the practice because it is ‘normal’, ‘expected’, or

‘customary’ in the host country. However, just to say that something is normal doesn't mean that it
is right. 38 states across the world have now signed up to the OECD anti-bribery convention, which
is aimed at stamping out corruption in international business.
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Many MNC staff seem to be caught between the ethical commitments of their code and the
realities of everyday business. One way that some firms have responded to this problem is to
amend their codes of conduct so that employees are not penalised for any loss of business
due to avoidance of bribery.
Detailed and specific codes of conduct: “The Board of Unilever will not criticise
management for any loss of business resulting from adherence to these principles” — if
you lose it because of bribery, you will not be criticised.
Complex supply chains

Ultimately, the implication of these shifts towards global supply and competition is that individual
firms appear to be faced with the prospect of an extended chain of responsibility. Where once it
may have been perfectly acceptable to argue that the ethics of a firm’s suppliers, or a firm’s impact
on its competitors, was simply not any of its business, this is no longer the case. The different
social and economic conditions present in other countries, as well as the sheer inequalities brought
to the surface by international trade, have meant that the relatively level playing field constituted by
national business has been replaced with the sloping and bumpy playing surface of globalisation.
Supply chains dispersed all over the world. “Suppose you

want to buy products that don't contribute to genocide,
can you do that?” 2010 Dodd Frank Act required
companies listed on U.S stock markets to report whether
their products contained minerals coming from the
Democratic Republic of Congo, considered to be conflict
minerals (funding warlords).
Different standards
As firms from industrialised countries have increasingly sourced through global supply chains,
probably the most prominent ethical problem to have come under the spotlight is the labour and
environmental conditions under which their suppliers operate. Clothing and sportswear producers
have frequently been the most affected, with accusations of sweatshop conditions being launched
at major European brands such as Reebok, Adidas, and Us brands such as Disney and Nike.
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Typically, the debate has mainly centred on pay, working conditions, and child labour. However,
they also refer to broader issues such as freedom of association, equality, abolition of forced
labour, etc. Many companies have discovered that in their suppliers’ factories, workers have been
paid below a living wage, subjected to physical and verbal abuse, worked compulsory overtime,
failed to have statutory rights to time off recognised and even engaged in child labour.
Different environmental and health and safety standards in suppliers’ countries can also provide a
loophole through which firms can potentially secure low-cost supplies by bypassing the stringent
standards in their country of origin. For example the recycling of ‘end-of-life’ electronic waste has
increasingly been outsourced to developing countries in Asia and Africa. Despite international laws
banning this, environmental concerns have grown so much that this is now happening.
Nike’s suppliers contracting from factories with sweatshop conditions
Nike director Todd Mc’Kean stated (2001) in an interview that the “initial attire
was ‘Hey, we don’t own the factories. We don't control what goes on there.’”
Is it the choice of suppliers who use questionable working practices an ethical

issue for Nike? In order to consider the issue, these three factors must be
considered:
• The decision is likely to have effects on others

• The decision is perceived as ethically relevant by one or more parties
• Alternative courses of action are open
Ethical sourcing and fair trade

Ethical sourcing is the inclusion of explicit social, ethical, and/or environmental criteria into supply
chain management. Achieved through screening by buyers and assessed through:
• Certification programs
• Independent audits
• Certification programs
Although far from comprehensive, increase numbers of large companies now include some kind of
criteria of this kind in their purchasing policies and agreements. More recently, various firms such
as Nike, Puma and Reebok have introduced ethical codes of conduct intended to prevent labour
and human rights abuses in their suppliers’ operations, whilst companies such as the Body Shop
and Fat Face have joined the Ethical Trading Initiative to improve their implementation of such
codes.
Fairtrade
So far, ethical sourcing has been discussed as a form of regulation through the supply chain. This
tends to give the impression that ethical sourcing is always a way of controlling suppliers. However,
in some cases, ethical sourcing can actually be more developmental, where suppliers that are
seen to be socially beneficial in some way are protected, rewarded, and assisted in achieving
development goals.
Approaches to ethical sourcing that focus on equitable trade arrangements, small-scale producers,
and supplier empowerment are usually referred to as fair trade. Ethical sourcing and fair trade
have traditionally been quite different — the former has mainly been driven and implemented by
big multinationals, whilst the latter has been more relational in approach and led by alternative
trading organisations.
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Fairtrade is a system aimed at offering ‘the most disadvantaged producers in developing countries
the opportunity to move out poverty through creating market access under beneficial rather than
exploitative terms. The objective is to empower producers to develop their own business and wider
communities through international trade’.
• 25 organisations
• Work under an umbrella of Fairtrade International (FLO)
• Initially fairtrade was a small movement by NGOs and
churches in the 70s/80s
• It now has $5 billion in sales every year
• Fairtrade products are typically tropical commodities
The aim of the fair trade movement is to foster the protection

and empowerment of growers, as well as encourage
community development by guaranteeing minimum prices
and conditions. This is achieved through the application, monitoring and fnrocement of a fair trade
supply agreement and code of conduct, typically verified by an independent social auditing system
operated by a national body such as the Fairtrade Foundation.
However, it is ironic because all of these fair trade products are distributed in large multinational
corporations, and only the raw materials are being sourced from smallholder producers in
developing countries. The process of creating the products actually takes place in other parts of
the world.
Consumer conscience
As consumers it is difficult to make the decision of buying a fair trade product in comparison to a
cheaper alternative. We can only question the source of products to a certain limit as consumers,
and hence this is a hard debate. However, we are usually tempted to buy fair trade products as
opposed to others because we feel guilty. In the US, 94% of people are environmentally friendly
and 90% are willing to pay the price for fairtrade products.
A lot of imagery is used for fairtrade to convince consumers to buy fair trade products as many of
their websites show pictures of farmers/workers ethically producing products and looking happy. A
lot of organisations also make stories in order to attract consumers and make them empathise.
Strategies for sustainable supply chains

• Sustaining the supply chain — this involves ensuring that practices are sustained throughout
every part of the supply chain (supply chain continuity). This requires firms to engage in a variety
of initiatives, from training and financing to enable them to use sustainable production methods.
This also helps to develop greater linkages among the various firms involved in the supply chain
and helps them turn into more sustainable ‘closed loop systems’.
• Turning supply chains into loops — businesses need to adopt a more circular view in terms of
resources: wastes need to be recaptured and brought back into productive use. This notion is
called a circular economy, as it creates a circular flow of resources. These help to address
sustainability issues both from he front and the back end of linear supply chain systems. E.g.
Nike’s ‘reuse a shoe’ system.
• Industrial ecosystems — groups of firms are increasingly being seen as interdependent entities
that share resources and produce a shared environmental burden. Just as natural ecosystems
comprise a balanced network of interdependent organisms and their environments, which feed
off each other and give and take resources off each other maintain equilibrium and survive, so
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too can businesses use each other’s waste and by-products to minimise the use of natural
resources.
Revision questions
1. Consider the following statement: “Even though some competitors will loose out from a deal,
using a bribe to achieve the deal in one isolated occasion is ethical if that bribe will bring more
value to the company and to the broader society.” Which ethical theories would definitely support
this statement? (select ALL that apply)
a. Ethics of rights and justice

b. Egoist ethics
c. Kantian ethics
d. Utilitarian ethics
e. Virtue ethics
2. Which best defines ‘ethical sourcing’?
a. The inclusion of social, ethical and/or environmental criteria into supply chain
management
b. A commitment to only use fair trade suppliers
c. The inclusion of profit maximization criteria in supply chain management
d. A commitment to only use foreign suppliers
e. A system whereby all suppliers must have a green certification
3. Which of the following is true about the relationship between firms and their competitors:
a. Ethical issues arise only when the firm is engaging in aggressively competitive behavior.
b. It is unethical for the firm to increase prices but reducing prices is always ethical.
c. Negative advertising could be ethical from an egoist perspective, but it is unethical
according to Kantian ethics.
d. A buyer has a lot of power over a supplier when there are no alternative suppliers for the
product.
e. All of the above.
4. FIFA (the football international governing body) awarded the 2022 World Cup tournament to
Qatar. The organisation has been criticised because of Qatar’s use of slave labor to build stadiums
for the event. Former FIFA president said in an interview that “the welfare of migrant workers
involved in building facilities for the 2022 World Cup in Qatar was the responsibility of the
companies who hired them, not Fifa.” Is the awarding of the tournament just a business decision
for FIFA, or is it also an ethical decision? Explain.
Think about the three points that make people think about whether an issue is ethical or not.
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Week 9 — Civil Society and Business Ethics

Civil Society (CS)
Definitions
A “community” with shared norms and ethos, in which free citizens on an equal footing live under
the rule of law. The telos of CS is common wellbeing. — Aristotle, “Politics”
A community of citizens linked by common interests and collective activity. — The Oxford
Dictionary
The public sphere where debate and deliberation allows the negotiation of the common interest. —
The Oxford Handbook of Civil Society
Civil Society Organisations (CSOs)

Pressure groups, charities, religious groups and other actors that are
neither business nor government organisations, but which are involved in
the promotion of certain interests, causes, and/or goals. (Crane and
Matten 2016)
Different scales
• Neighbourhood groups “The Third Sector”
• National groups
• International groups
Different causes
• Human rights
• Animal rights
• Environment
• Anti-poverty and social development
• Health
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Types of CSOs: Sectional vs. promotional groups
Why do we need CSOs? (Why are they important?)

In the UK there are hundreds of charities that we’ve all had experience with. It doesn’t produce
tangible goods so why do we need them?
Justice and democracy
• Representing individuals to give choice, negotiate and influence in political processes

• Typically applies to closed-member CSOs (sectional groups): trade unions, student unions,
professional groups, industry associations
Social progress
• Promoting a social cause

• Typically applies to open-membership CSOs (promotional groups): human rights groups,
animal rights groups, environmental NGOs
CSOs and corporations

Corporations have become powerful actors:
• Many are larger than nation-states (in terms of economic power)
• Many wield influence over consumers
• Many wield influence on governments
For example, Exxon Mobile: spent $10 million on lobbying in Washington each year. Attended UN
panels to obstruct climate change initiatives. Founded and led industry groups (sectional CSO’s) to
deny climate change.
The growth in the number, power and influence of CSOs represents one of the most important
societal developments in the past twenty years, in terms of how the dynamics of public debates
and government policies concerning corporate behaviour are changing. (Yaziji and Doh, 2009: 16)
How do promotional CSOs influence powerful corporations?
• They don't represent a “constituency”

• They don’t directly contribute to anything to corporations
“Social licence to operate”
• The ongoing approval and acceptance of a company’s activities by society

• Promotional CSOs influence corporations by investigating public debates and shaping societal
attitudes
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CSO confrontation with corporations

Indirect actions
• Issuing press releases

• Conducting research and investigations
• Petitioning
• Lobbying
Violent direct action
• Vandalism
• Break-in
• Arson
• Intimidation
Non-violent direct action
• Demonstrations, marches, protests

• Picketing
• Occupations (occupying Wall Street)
• Boycotts
• Stunts (street theatre)
Example: non-violent direct action goes online — Chevron “We Agree” Ad Campaign (2010,
$80m)
https://www.youtube.com/watch?v=MNjTeRW7ihk&list=PLF405D3AFFE9DE818
CSO collaboration with corporations

One way approach
• Corporate philanthropic giving

• Corporate foundations
• Employee volunteering
• Make a meaningful contribution
• Enhancing the firm’s reputation
• Building goodwill with the community
• Human resource development
• Increasing employee morale Npower
employees
volunteering in
the community
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Two way approach: Cross-sector collaboration (social partnerships)
Why do corporations want to partner with CSOs?
• Desire to engage with stakeholders

• Desire to borrow NGO’s credibility with the public
• Borrowing CSO’s expertise (cross-fertilisation of thinking) — e.g. Unilever and
Oxfam’s partnership in “Project Sunrise” (2010) aimed to reduce poverty of
small holders in Azerbaijan, which helped to achieve more effective resource
allocation.
Consumers want it! Kraft Foods partnered with the Rainforest Alliance on Sustainable Coffee
Initiative (2003). Brining certified coffee beans into Kraft brands. Funding technical assistance and
training on coffee farms.
Why do CSOs want to partner with corporations?
• Needing resources
• Disenchantment with government desire of exploring ways to work with firms
• Borrowing corporate expertise (cross-fertilisation of thinking)
Challenges
• Different cultures and values —> having trouble working together

• Inadequate commitment
• Different expectations
• The distribution of benefits
• Power imbalance —> the problem of “co-optation”
• To assimilate or take over into a larger/established group
New forms of CS-Business collaboration

Using market-based solutions to address social problems
• Venture philanthropy (social investment) — applying venture capital techniques to grant making
• Social enterprise — a hybrid form of business and CSO
Guest speaker: Social entrepreneurship and social enterprise

What is an entrepreneur? What is innovation? If you don’t innovate someone will come and disrupt
your industry e.g. Netflix and live streaming videos.
Entrepreneurial process
Resources — injection of money into business. Ask for
funders to invest into business idea, however, they must
be able to spot a business opportunity in the market or it
probably will not work.
Uncertainty of the environment — not sure if it will work

or not. Maybe if the market isn't researched enough,
people may not want the product/service. Some people
thrive in uncertain environments e.g. by diversifying,
creating more customer solutions to problem.
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Innovation/economic entrepreneurship = economic

growth, create wealth etc
Social-behavioural view = recognise some traits are

important but social context is also important.
Character traits of entrepreneurs

• Opportunistic (Smith, 1987)
• Innovative (Schumpeter, 1934; McClelland, 1961; Hornaday and Aboud, 1971)
• Self-confident (McClelland, 1961; Welsh and White, 1981)
• Proactive and self-motivated (Bird, 1989; Chandler and Jansen, 1992)
• Risk taker (Cantillon, 1755; McClelland, 1961; Palmer, 1971; Timmons, 1978; Brockhaus, 1980;
Martin, 1982)
• Opportunities spotter (Kirzner, 1978; more w3)
• Need for independence and achievement (McClelland, 1961)
• Internal locus of control (Rotter, 1966)
• Self-confident (Davids, 1963()
• Unwilligness or inability to delegate (Sutton, 1954)
• Lifestyle firms — often trade — or craft based; do not grow (Smith, 1987)
Commercial/business entrepreneur — to make profit for business and stakeholders?
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Who are they?

Entrepreneurs who:
• Hold social, cultural and environmental social aims apply market based principles to address a
social problem
• Strive to achieve the triple bottom line: social, environmental and economic
• Often address social problems that have been unmet by private sector organisations and public
sector agencies
Characteristics
• Identify practical solutions to social problems
• Resourcefulness
• Opportunity
• Focus first and foremost on social value creation
• Innovation — a new approach to a social problem
• Innate belief in capacity of individuals to contribute meaningfully in social and economic
development
• Balance social mission with for-profit motives
What is a social enterprise?

Definition: “A social enterprise is a business with primarily social objectives, whose surpluses are
principally reinvested for the purpose in the business or in the community, rather than being driven
by the need to maximise profits for shareholders” (DTI, 2012)
Social entrepreneurs need to trade to make money, while social enterprises have a social mission.
A social enterprise is a hybrid model, combining the social value with money. For profit and for
social value.
Characteristics
1. Have a clear social and/or environmental mission set out in their governing documents
2. Generate the majority of their income through trading
3. Reinvest the majority of their profits into the business
4. Autonomous of state
5. Majority controlled in the interests of the social mission
6. Accountable and transparent
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Theoretical debates on social enterprise
Differences in definitions
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CSR vs. Social Good

There are two distinct ways of doing business:
The primary purpose of social enterprise is its social, cultural, and/or environmental mission — it
tires to maximise the amount go social good it creates.
An ethical business attempts to minimise its negative impact on society or the environment via
CSR initiatives.
What makes a social enterprise different?
A social enterprise does:

1. Have a clear social mission — knows what difference it is making, who it aims to help and how
to do it
2. Engage in for-profit trading activity to sustain social model and address social needs
3. Recoup its initial investment in the long-term (may need start-up funding)
4. All profits are reinvested back into the business to make a difference
A social enterprise does not:

1. Exist to make or maximise profits for shareholders
2. Exist to make its owners wealthy
3. More often rely on volunteering, grants, government subsidies or donations to stay afloat in the
long-term
Key features of the social enterprise sector in the UK
• Approx 70,000 social enterprise in the UK

• Contribute £24 billon to the UK economy
• Employ almost a million people
• The proportion of social enterprises that grew their turnover over the past 12 months is 52%
• 31% of social enterprise are working in the top 20% deprived areas in the UK
• Innovation pioneers: the number of social enterprises introducing anew product/service grew by
59%
Legal framework of social enterprises
Social enterprises use a wide variety of legal forms. The most common are:
• Community interest company (CIC)
• Industrial and provident society (IPS)
• Companies limited by guarantee or shares
• Group structures with charitable status
Example: WildHearts — Business for Good
What sector does the business operate in?

Office and business supplies
What sector/area does your organisation support?

WildHearts Office funds the work of the WildHearts Foundation. In the UK, WildHearts delivers free
employability training and entrepreneurship education in schools via award-winning Micro-Tyco
programme. In the developing world, they fund micro-finance to help people set up small
businesses to work their way out of poverty sustainably
How do they generate income?
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B2B sales of stationery, print, merchandise, workwear, office furniture, catering supplies and data
management.
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Week 10A — Communities and Business Ethics

Grand Challenges
Mankind face large unresolved problems
• Political instability and wars
• Migrant crises
• Hunger and poverty
• Climate change
• Water scarcity
• Difficult-to-cure diseases
UN Sustainable Development Goals (SDGs)

• Officially known as “Transforming our world: the 2030 Agenda for Sustainable Development”
• Comprises 17 “Global Goals”
• 193 Member States and global civil society
 
“We don’t have plan B because there is no planet B.” — Bank Ki-moon
1. No poverty
2. Zero hunger
3. Good health and wellbeing
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnership for the goals
Grand Challenges require collective actions

A successful sustainable development agenda requires partnerships between
governments, the private sector and civil society.
These inclusive partnerships built upon…shared goals that place people and the planet
at the centre, are needed at the global, regional, national and local level.
Poverty
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Poverty: moral dilemma

Poverty exists all over the world. 835 million people live in extreme
poverty (UK population is currently 65 million).
Why you might NOT save a child from drowning.
We tend to have more compassion when we see misery right in front

of us. However, if the suffering happens in a place far away, we might
not be ready to take action.
Inequality
Economic pyramid constituting a society
A negative case: Shell in Nigeria
• In the 1990s Shell was the world’s largest oil company

• Collaborated with the repressive government of Nigeria
• Controlled 60% of Nigeria’s known oil reserves
• Operated in “Ogoni land” (tribe)
• Oil extraction heavily polluted the area and caused a lot of damage to the community
• However, Shell doesn't believe that it is their responsibility because Shell companies “should
endeavour always to act commercially…and avoid involvement in politics” (their business
principles)
A positive case: Tata Group in Kenya — Magadi Soda Ash
• Subsidiary mining arm of Tata Group in Magadi, Kenya

• The company provided water/power to communities
• Built and operated health clinics and schools
• Built railway lines to connect Magadi to Nairobi (capital city) and the port city, which allowed
commercial operations to take place and the villagers to travel more freely
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A positive case: &Beyond
• Operator of luxury adventure lodges in Africa

• Communities surrounding the lodges are often very poor
• Local resistance to the company
• &Beyonds built schools and hospitals for the communities
• Exposed its consumers to its community development projects
Making a case for helping the poor community

• Earning a social licence to operate — contributing to the firm’s long term
success: business argument
• Offsetting negative impacts of the firm’s operations to the community: moral argument
• Firms have the money, technical know-how and political influence to help: moral argument
Helping the world’s poor: Merck
River blindness is a disease in Africa, and there is no cure.
The problem of poor customers in drug R&D
• R&D of a new drugs require heavy investment

• Poor customers cannot afford drugs
“We had never undertaken the development of a drug that was going tone broadly used, with the
idea that we are not going to make money” — Dr. Vagelos, head of Merck’s research
A potential solution?
• In the late 1970s, a Merck scientist discovered a compound that killed a similar parasite in horses
• In 1978, Merck decided to fund the research of a cure for river blindness
• IN 1981, Merck conducted human tests in Senegal
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• IN 1987, Merck received regulatory approval (French government: $3 per dose), yet no
government wanted to buy it
What should Merck do?

1. Give up the drug
2. Donate the drug
However, donating the drug would mean:

• Costs of production
• Costs of distribution
• Potential legal liabilities
A good example for other businesses
• October 21, 1987, Merck held conferences in Paris and Washington, announcing it would supply
Mectizan for free to everyone who ended it, for as long as necessary
• The same compound as a veterinary drug was bringing in $300 millions a year
• Significant goodwill from Merck’s stakeholders
• Positive influence on other companies’ community-helping behaviour — other businesses were
beginning to donate more products to unprivileged communities
The Mectizan Donation Program
• 2 billion treatments donated

• River blindness has become rare (only need one a year to get treated)
• The development of other drug donation programs
• Add-on health services in remote communities
“We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and
if we have remembered that, they have never failed to appear.”
Serving the world’s poor
“Bottom of the pyramid” (BOP), C.K.

Prahalad
MNCs could radically improve the lives of

billions of poor people by developing
products and services for these
communities.
For-profit model
That taps into billions of consumers at the
bottom of the economic pyramid.
BOP markets
• They are underdeveloped —> growth can

be extremely rapid
• Can develop competitive advantage for the MNCs
• MNCs can help alleviate poverty by being “self-interested”
Examples
• Banco Real (owned by Santander) provided microcredit services in Brazil to poor entrepreneurs
• Danone: high nutrition yoghurt for poor kids in rural Bangladesh
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• Intel: low-cost laptops for school children in poor countries

• Danone’s project Malin: working with Red Cross to provide low-income French parents with low-
cost nutritious food for children
The environment
A case for water

Coca-Cola India and water in communities
• Water conservation partnership with WWF 

2007: announced ambitious goal to return to communities an amount of water equivalent to what
the firm sued
• Coca Cola has engage in cross-sector partnerships in Angola, Ethiopia, Mozambique, Nigeria
and Rwanda to bring water supply to remote communities
• It has inspired other MNCs to start similar projects: Netle, SabMiller, mining companies
Waste water
• Over 80% of waste water resulting from human activities is discarded into rivers or sea without
any pollution removal
Thames water
• Supplies 1/3 of water and sewage systems in England

• Was hit in March 2017 with the largest fine for water pollution in UK corporate history — £20.3m
• Dumping 4.2bn litres of water waste to Thames (2012-2014)
• Fish and birds died, children and animals fell sick
• Paid £1.16 bn in dividends (2006-15)
• Paid execs massive remuneration packages
• Paid zero corporate tax int he same period
• £260m pension deficit
Takeaway
• Human beings face grand challenges that require collective actions
• There are moral cases and business cases for the private sector to help address grand
challenges —> some firms have successful helped address poverty and water scarcity e.g. Tata,
etc. mentioned above
• When firms choose to ignore grand challenges and focus on self-interest, their social licence to
operate will be compromised (Thames Water)
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WEEK 10B — Government, Regulation and

Business Ethics
Government as a stakeholder
Why is the government an important stakeholder for business organisations?
•
Government as a
stakeholder of
business Control and regulatory oversight
• Safety policies
• Pollution
• Labour laws
Government as the elected
representative of citizen’s interests Market facilitation
• Permits
• Safety
• Infrastructure
Incentive-based policies
Enabling • Direct subsidies
Restricting Dependent
• R&D investments
business business on business
• Tax breaks
Government as a
stakeholder of
business
Employment
Economic development
—> re-election
Government as an actor (or group Privatisation of previously

of actors) with interests of its own government-omened businesses:
• Telecommunications
• Utilities
• Railroads
• Healthcare
Dependent Competing with

on business business
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Government, laws and regulation

Government — institutions and actors at different levels that share a common power to issue laws.
Public policy — a collection of laws, mandates or regulations established through the political
process.
Regulation — rules issued by governmental actors and other delegated authorities to constrain,
enable, or encourage particular business behaviours.
Analysing the policy process: the four I’s

1. Issues
E.g. safety, animal rights, environmental impact, international trade
2. Interests
E.g. businesses, industry associations, activist groups, public
3. Institutions
Government institutions, private and international agreements, ‘soft institutions’ (e.g. public
sentiment, media)
4. Information
Facts, knowledge of consequences, knowledge of preferences
Issues
• e.g. safety
Interests
• e.g. busine
Institutions
• Governm
institution
Information
• Facts, kno
Issues
Degree of business influence
• e.g. safety; animal rights; environmental impact; international trade
Interests
• e.g. businesses; industry associations; activist groups; public
Institutions
• Government institutions; private and international agreements; ‘soft
institutions’ (e.g. public sentiment,
Lobbying Partymedia)
Overlap of posts State Privatization of
Lobbying Party Overlap of Corruption
financing between capture Privatization
governmental
financing business and
posts functions
government
Information
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Ethical issues in business-government relations

Information
Lobbying — activities to influence government policy through information provision and persuasion.
Information: data, analyses, opinions…but

• New solutions can lead to unintended consequences
• Competing information (from competing interests)
“Should the government raise fuel efficiency standards even if it raises the costs of buying
a car?”
California’s law to reduce CO2 emissions: costs of compliance for Ford Explorer were estimated at:
• $1,960 by the Union of Concerned Scientists
• $4,361 by the Alliance of Automobile
Manufacturers
New York City Mayor, Bloomberg’s Sugary

Drinks Portion Cap Rule, a.k.a. the Soda
Ban, is a limit on soft drink size in New
York City intended to prohibit the sale of
many sweetened drinks more than 16
ounces (0.47 liters) in volume to have
taken effect on March 12, 2013. Rejected
in 2014 by court.
Issues
How is the issue framed? E.g. lack of access to public transport for people with disabilities
• A transportation problem? No one will care because it will not get public attention.
• A civil rights issue? Policymakers are more likely to care, and other people like civil society
organisations and NGOs might support your case.
Renewable energy for…

• The environment
• The economy
Is this issue relevant for public policy? E.g. Soda ban

• Wanted to restrict the sale of soda
• It was rejected by the court of New York
Institutions
Is this issue relevant for public policy?
Interests
• Who has a stake?

• Are they motivated?
• Are their interests homogenous?
• Are they organised?
• Are they visible?
• What resources do they have to lobby?
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Instead of representing the public interest, it may represent the private interest.
Party financing, overlap of posts, corruption
• Donations to parties, politicians and political campaigns

• Overlap of posts between private and public sector
• Bribery and corruption
All of these lead to state capture. State capture is a type of systemic political corruption in which
private interests significantly influence a state's decision-making processes to their own advantage.
Privatisation
Privatisation — government cedes responsibility for the provision of certain goods and services to
business.
Should natural monopolies be privatised?

• Overcharging
• Poor quality
Citizens or consumers?
• Are citizens represented only when it is profitable? If yes, what about critical services (education,
health, water, electricity)?
Government as a stakeholder: Using theories

Consider the ethicality of state capture from the perspective of utilitarian ethics.
Collective benefits. Think of benefits to private groups and costs to others e.g. the public. The
public is larger than private groups so it’s considered to be wrong. It could only possibly be right if
the benefit to private interest is really high and the cost to the public is really low.
Limits to governments
Globalisation challenges
• Business can capture entire countries
• Firms can evade strict regulation by relocating
• Tax evasion
• Weak enforcement of safety, labour, and environmental standards and the race to the bottom
• No single government can regulate business activity
• Self regulation: rules set by the industry itself, sometimes in
collaboration with other actors (e.g. NGOs)
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Markets in civil life

The state and civil life replaced by market mechanisms
Reading:
Prahalad, C. K., & Hammond, A. (2002). “Serving the world's poor, profitably”. Harvard business
review, 80(9), 48-59.
Crane A. and Matten D. (2016) Business ethics Chapter 11
https://www.ted.com/talks/
michael_sandel_why_we_shouldn_t_trust_markets_with_our_civic_life#t-861231
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WEEK 11 — Revision Session

Practice questions
1. d
2. b
3. e
4. a
5. c
6. b — e
7. d
8. b
9. a — b
10. b
11. a — c
12. a
Information asymmetry means that the p
For an issue to be considered ethical, it must satisfy three criteria: (1) the decision has effects on
others; (2) the decision is perceived as ethically relevant by one or more parties; (3) alternative
courses of action are open. FIFA’s decision to award the tournament to Qatar likely has an impact
on the type of labour used to build stadiums, satisfying the first criterion. The organisation has
been criticised by others, satisfying the second criterion. If FIFA had alternatives (other candidate
countries), then the raid criterion is also satsified, making this an ethical decision.
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Business Ethics - Lecture notes

BUSINESS ETHICS (University of Surrey)

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Week 1 — Introduction to Business Ethics

Unethical corporate actions

What is business ethics?

The study of business ethics:

Ethics applied, some examples

Are entire industries unethical?

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• Ethical — can help people such as soldiers/the army who need

Relationship between ethics and the law

Why is business ethics important?

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Globalisation and business ethics

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Socially ethical companies: Bodyshop, Lush, Innocent smoothies

Sustainability refers to the long-term maintenance of systems according to environmental,

Corporate Social Responsibility (CSR)

• Pressure from government

Triple bottom line: planet, people, proﬁt

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The effective management of physical

• Impacts of industrialisation on biodiversity

The economic perspective of sustainability

Your choices and the planet

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• Cheaper for host country • Air freight pollution

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Week 2 — Modern business ethical theories: Why

Can a corporation be morally responsible?

Counter arguments to 1st point:

Counter arguments to 2nd point:

• Corporations cause social problems

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Counter arguments to 3rd point:

Discussion: did Facebook elect Trump?

Is Facebook morally responsible for fake news and

On the other hand:

Corporate Social Responsibility

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The CSR pyramid

• Economic responsibilities — companies have shareholders who demand a reasonable return on

Stakeholders = constituencies, the society, the “social”

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Traditional management model

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A new role for management

Using stakeholder theory for analysis

• Who are your ﬁrm’s stakeholder groups? (“mapping”)

Firms have begun to take on the role of ‘political’ actors:

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Firms take up many of the functions previously undertaken by government because:

Three views of corporate citizenship

CC has three different perspectives:

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The trend: integrating the social and the proﬁt

• Shell OIl’s face off with Greenpeace on Brent Spar

Media and the public

• Various CSR rankings

• Holding corporations responsible for social consequences

Integrated CSR: Key considerations