Business Ethics and CSR

Majid Khan
Recap
• What is business ethics?
• Why is business ethics important?
• Sustainability: a key goal for business ethics?
• Defining CSR?
• Stakeholder theory
• Corporate citizenship
Agenda

• Locate the role of ethical theory

• Highlight international differences in perspectives
• Provide critical overview of traditional ethical theories
• Explore contemporary ethical theories
What are ethical theories?
• Ethical theories are the rules and principles that determine right
and wrong for any given situation Crane and Matten (2010)

• Normative ethical theories are those that propose to prescribe the

morally correct way of acting

• As opposed to descriptive ethical theories which seek to describe

how ethical decisions are actually made in business
The role of ethical theory
The role of ethical theory
Two extreme positions (De George 1999)
• Ethical absolutism claims there are eternal, universally applicable
moral principles
• Right and wrong are objective qualities, can be rationally determined
• Typically, traditional ethical theories
• Ethical relativism claims morality is context-dependent and subjective
• No universal right and wrong that can be rationally determined; depends on
person making the decision & culture in which they are located
• Typically, contemporary ethical theories
North American and European origins and
differences
• Differences between Anglo-American and European approaches
based on philosophical arguments
• Individual versus institutional morality
• US tends towards individualistic perspective
• Europe towards wider economic and governing institutions
• Questioning versus accepting capitalism
• US tend to accept the capitalist framework
• Europe tend to question the ethical justification of capitalism
• Justifying versus applying moral norms
• US tend to focus on application of morality
• Europe focus on justification and ethical legitimation of norms
• In contrast, Asian perspectives tend to be based on religion (e.g. Islam,
Buddhism)
Normative ethical theories
Traditional ethical theories
• Generally, offer a certain rule or principle which one can apply to any
given situation
• These theories generally can be differentiated into two groups

Motivation
/ Action Outcomes
Principles

Non-consequentialist Ethics –
Underling principles be morally right
Consequentialist Ethics –
desirable outcome imply action is morally right
Western modernist ethical theories
Egoism (Consequentialist Ethics)
• Theory of egoism - an action is morally right if the decision-
maker freely decides an action to pursue either their (short-term)
desires or their (long-term) interests.
ØAdam Smith (1793): pursuit of individual interest morally
acceptable as invisible hand of market creates benefit for all
ØRelies on free competition and good information
Ø‘Enlightened egoism’ – donation, charity
ØHowever, markets do not function perfectly
• Anti-globalisation movement – MNCs have unregulated
political power
• Sustainability debate – who represents later generation
Case to Apply Ethical Theories
Background - You are the product manager of a toys company in
Europe. You have two 5- and 7-year-old boys. You met a Thai toy
manufacturer in a trade fair in Europe that can offer you a good price
with good quality products. You are now visiting the Thai factory that is
in a village in the north-eastern part of Thailand to try to finalize a two
year supply contract. You notice the components are delivered to many
Thai families home, where not only father and mother doing the job,
but also couple of children age from 8 to 14 children working busily. As
you can see, the children are very cheerful together with their parents.
You never come across such a pattern of manufacturing. The Thai
partner explained to you that this is a very common and well-
established practice in this part of the country.
Apply Theory of Egoism
•The children are happy to help their parents
and just take it for granted in that part of the
world
•As product manager, you get a good price with
good quality products. The Thai manufacturer,
your supplier, also makes good profit from this
deal
•From an egoistic look, the deal is morally right
Utilitarianism (Consequentialist Ethics)
• According to utilitarianism, an action is morally right if it results in the
greatest amount of good for the greatest number of people affected
by the action

• Also called the ‘greatest happiness principle’

• Based on cost-benefit analysis
• Animal testing for medical research cause pain on animals that prevent far
greater pain on behalf of humans that profit from the tested drugs
Watched this from The Good Place?
https://www.youtube.com/watch?v=vfIdNV22LQM

https://www.youtube.com/watch?v=DtRhrfhP5b4
 Philip Morris Study
Cost benefit analysis of smoking

Costs Benefits
Increased health care costs Tax revenues from cigarettes sales

Health care savings (when people die

early)
Pension savings

Savings in housing costs

Philip Morris Study
Net gain if citizens smoke = $147 million

Savings from premature deaths: $1227.00 per

person
 Repairing For Pinto
Costs Benefits

$11 per part * 12.5 million 180 deaths * $200,000

cars = 137 million (to 180 injuries * $67000
improve safety) 2,000 vehicles * $700
= $49.5 million
Problems with Utilitarianism
• Subjectivity - depends heavily on the subjective perspective of the
person who carries out the analysis

• Issues around quantification and distribution of utility - difficult to

assign costs and benefits to every situation, distribution of utility may
ignore the interest of minorities
Problems with Utilitarianism

You see a train heading in If you could not stop the

the direction of a group of train and could only shift it
children and is in danger of to an alternate track which
hitting them. Would you would cause it to hit a CEO.
stop the train? What would you do?
 Act utilitarianism
• Looks to single actions and bases the
moral judgement on the amount of
Act- and pleasure and the amount of pain this
single action causes.
Rule-
Utilitarianism Rule utilitarianism
• Looks at classes of action and ask
whether the underlying principles of an
action produce more pleasure than
pain for society in the long run.
Apply Utilitarianism in the Thai Example
Act utilitarianism
• Based on act utilitarianism, we ask whether the working students’ pain is
small or big. We may consider this morally right as their pain is small, and
there may be no school education available if they do not work in the toy
factory
Rule utilitarianism
• under rule utilitarianism, we would ask whether child labor in principle
produce more pleasure than pain. Then the conclusion may be different as it
is difficult to argue that the pains of child labor in principle produce more
pleasure than pain
Immanuel Kant
• He rejected Utilitarianism
• Individual dignity because we are
a) Rational beings
b) Autonomous beings
c) Pain and pleasure – suffering and satisfaction

• Freedom (are we free or slaves of our own desires?)

Kant’s conception of freedom
To act freely =
to act autonomously =

to act according to a law, I gave myself

Heteronomy
To act according to a desire I haven’t
chosen for myself
Morality – according to Kant
To act freely, is not to choose the best means to a given end is to
choose the end itself for its own sake.

This capacity to act freely gives human life special dignity, and
respecting human dignity means regarding persons not just as means
but also as ends in themselves.

What gives an act its moral worth in the first place?

Kant’s conception of morality (ethics)

Moral worth of an action depends on motive

(do the right thing for the right reason)

Duty vs. inclination

Reason (Imperative)
Imperatives
• Hypothetical imperative: Use instrumental reasons

• Categorical imperative: Without reference to or dependence on any

farther purpose
Ethics of duties (Non-Consequentialist Ethics)
‘Categorical Imperative’ (Kant)
• Maxim 1: Consistency
• Act only according to that maxim by which you can at the same time will that it should
become a universal law.

• Maxim 2: Human Dignity

• Act so that you treat humanity, whether in your own person or in that of another, always as
an end and never as a means only.

• Maxim 3: Universality
• Act only so that the will through its maxims could regard itself at the same time as universally
lawgiving (would others agree? Would you be happy to see your decision reported in the
press?)
Apply Ethics of duties on Thai example
Problems with Ethics of duties
• Undervaluing outcomes
too little consideration and no real way of assessing the outcomes
of one’s action
• Complexity
this principles-based way of evaluating a decision requires a certain
amount of abstraction that we cannot assume everyone have this
intellectual ability
• Misplaced optimism?
view all man as rational actor who can decide whatever is the morally
right or wrong thing to do seems more as an ideal than reality
Ethics of rights and justice (I)
(Non-Consequentialist Ethics)
Natural rights
• Certain basic, important, unalienable entitlements that should be respected and
protected in every single action.

• Based on consensus about nature of human dignity

• Strongly based in western view of morality
Ethics of rights and justice (II)
• Natural rights include rights to life, liberty, justice, education, property,
and fair trial, freedom of belief, association and expression, freedom
to speech, consent, and privacy. These rights typically result in the
duty of others to respect them. The right of one person can result in
corresponding duty on the other persons to respect, protect, or
facilitate these rights.
• The Thai children’s right to education is violated, and arguably to
infringe the right to freedom to consent. Besides, a human rights
perspective would cast doubt on the issue of an individual’s right to a
living wage, as it appear that poor wages could have necessitated the
engagement of the entire family in employment over long hours of
work
Class discussions
• How about the people exercising their freedom by refusing to be
vaccinated?

• Free speech and hate speech?

Justice

• The simultaneously fair treatment of individuals in a given situation with the

result that everybody gets what they deserve

• Fair procedures (procedural justice)

• Fair outcomes (distributive justice)
 Veil of ignorance
• All people are biased by their situations, so how can people
agree on a “social contract” to govern how the world should
work.
• Jhon Rawls suggested we should imagine that we sit behind
a veil of ignorance that keeps us knowing from who we are
and identifying with our personal circumstances.
• By being ignorant to our circumstances, we can more
objectively consider how societies should operate.
Moral force of an actual contract
• How do they bind or obligate?
a. Consent-based à Autonomy
b. Benefit based à Reciprocity
• How do they justify the terms they produce?
Three different theories of distributive justice
• Egoist – Free market system

• Meritocratic – Fair equality of opportunity

• Egalitarian - Rawls’ difference principle

John Rawls’s (1971)
‘Theory of Justice’
1. Fair Procedure - Each person is to have an equal right to the most
extensive total system of basic liberties compatible with a similar
system of liberty for all. So not every student can go to university.
2. Fair Outcome - Social and economic inequalities are to be arranged
so that they are both:
a. to the greatest benefit of the least advantaged;
b. attached to offices and positions open to all under conditions of fair
equality of opportunity.
Fair Outcome - Social and economic
inequalities allowed
• The first principle is that we should ensure that basic freedoms are realized to the
same degree for everyone affected by the decision, assuming that inequalities
are unavoidable in a free and competitive market
• An arrangement is just when even the one who profits least from it is still better
off than they would be without it
ØHigh salaries of CEO is acceptable if employees at the bottom on the corporate hierarchy
were also better off as result of the high bonus of the CEO leads to better corporate
performance and higher salary increment
ØThe second condition will be met if everyone had a fair chance of ascend the corporate
ladder to become senior executive, regardless of gender, race, appearance, etc
 Major normative theories

Egoism Utilitarianism Ethics of duties Rights & justice

Contributors Adam Smith Jeremy Bentham Immanuel Kant John Locke

John Stuart Mill John Rawls

Focus Individual desires or interests Collective welfare Duties Rights

Rules Maximization of desires/self Act/rule utilitarianism Categorical imperative Respect for human beings
interest

Concept of Man as an actor with limited Man is controlled by avoidance Man is a rational moral actor Man is a being that is
human beings knowledge and objectives of pain and gain of pleasure distinguished by dignity
(“hedonist”)

Type Consequentialist Consequentialist Non-consequentialist Non-consequentialist

Limits of traditional theories
• Too abstract – too theoretical
• Too reductionist - focus on one aspect of morality at the cost of all the
rest of morality
• Too objective and elitist – can ethicists who know some ethical
theories can pronounce the right and wrong of other people without
any subjective experience of the situation
• Too rational and codified - suppresses moral feelings and emotion
• Too imperialist - assume Western theories suitable for the whole
world
Quiz – Section A

Some of my brilliant students contend “busines

ethics is of no importance to managers. Debates
about right and wrong should be left in the NBS
classroom”. Argue for or against this statement
using examples where appropriate.

Note: Those who cheat on ethics quiz will be sorry for rest of their lives and will go to hell!
Quiz – Section B
What is globalization and why it is important for
understanding business ethics? Select one multinational
based in Pakistan and set out different ways in which
globalization might have implication for business ethics in
that corporation.

Note: Those who cheat on ethics quiz will be sorry for rest of their lives and will go to hell!
Alternative perspectives on ethical theory
Approaches based on character and integrity
Virtue ethics
• Contends that morally correct actions are those undertaken by actors
with virtuous characters. Therefore, the formation of a virtuous
character is the first step towards morally correct behaviour

Acquired traits
• Intellectual virtues – firmness, curiosity. Wisdom is most prominent.
• Moral virtues – include honesty, courage, friendship, mercy, loyalty,
modesty, patience.
Apply Virtue Ethics
• Virtuous product manager aims to achieve far more than being a
profitable company, and is compassionate and considerate with the
supplier family spending and work, do business with them, assume
responsibility for children education, support a local school, pay
sufficiently high wages to allow the Thai family to send their children
to school, rather than making use of them as cheap labor
• A main drawback of virtue ethics is the absence of a clear code of
conduct from our relevant communities, and how do we translate
ideas of virtuous traits into ethical action. No specific rule or principle
can be applied in a simple way, and we need to cultivate our
knowledge and judgment on ethical matters over time through
experience and participation
Approaches based on ethics and responsibility

Feminist ethics/ethics of care

• An approach that prioritizes empathy, harmonious and healthy social
relationships, care for one another, and avoidance of harm above abstract
principles. Focus on relationships and not on character.
Key elements
• Relationships
• Decisions taken in context of personal human interrelations
• Responsibility
• Active ‘taking’ of responsibility, rather than merely ‘having’ it
• Experience
• Learn and develop from experience
Apply Feminist Ethics

• Try to find our if the children are really happy in this situation, and
involve a better understanding of the social and economic constraints
that cause the family to engage on this particular production pattern
• A feminist perspective may not against the involvement of children in
the production process, as well as the children are not forced or
compelled to work beyond their physical capacities, and the inter-
familiar relationships are functioning well.
• Feminist theories would also look at the situation of the other actors,
for example, how the income in the family is distributed, whether it is
for future education of children or for drinking and smoking of the
father
Approaches based on procedures of norm
generation
Discourse ethics
• Aims to solve ethical conflicts by providing a process of norm generation
through rational reflection on the real-life experiences of all relevant
participants
Key elements
• Ultimate goal of ethical issues in business should be the peaceful
settlement of conflicts
• Different parties in a conflict should sit together and engage in a discourse
about the settlement of the conflict, and ultimately provide a situation that
is acceptable to all ‘ideal discourse’ criteria
• Assume all human beings are rational to work out a solution that is closest
to the interests of all parties
• Considerable amount of time required
Apply Discourse Ethics
• The Thai trading company, manufacturer, parents, children,
potentially the consumers in Europe, should meet together to enter a
norm-generating discourse on the topic
• Apart from the difficulties, this approach may find a solution that
could be closest to the interests of all parties involved.
• Discourse ethics can used to handle issues like pollution/global
warming
Approaches based on empathy and moral
impulse
Postmodern ethics
• An approach that locates morality beyond the sphere of rationality in
an emotional ‘moral impulse’ towards others. It encourages
individual actors to question everyday practices and rules, and to
listen to and follow their emotions, inner convictions and ‘gut feelings’
about what they think is right and wrong in a particular incident of
decision-making.
• Base on empathy and moral impulse. Does not provide us with any
rule or principle, not even a recipe for ethical decision-making such as
discourse ethics.
Postmodern business ethics
• Postmodern business ethics emphasises (Gustafson, 2000:21)
ØHolistic approach - emphasizing the importance of the whole and the
interdependence of its parts
ØExamples rather than principles – see morality base on narratives of
experiences
Ø‘Think local, act local’ - no one situation is the same, and that different actors,
power relations, cultural antecedents and emotional contexts might lead to
different judgments
ØPreliminary character - ethical reasoning is a constant learning process, an
ongoing struggle for the solutions that have a better fit
Summary

Towards a pragmatic use of ethical theory

Typical Perspective

Ethical
Dilemma Single normative consideration
for solving the ethical dilemma

‘Lens’ of ethical theory

Pluralistic Perspective
Pluralism?
Crane and Matten (2019) argue that for the practical purpose of
making effective decisions in business:
• No one ethical theory is perfect
• Not suggest one theory or one approach as the best or true view of a
moral dilemma
• Suggest that all these theoretical approaches throw light from
different angles on one and same problem
• Complementary rather than mutually exclusive
Advocate position of pluralism
• Middle ground between absolutism and relativism
 Considerations in making ethical decisions:
summary of key insights from ethical theories
Consideration Typical question you might ask yourself Theory
One’s own interests Is this really in my, or my organization’s, best long - term interests? Would it be Egoism
acceptable and expected for me to think only of the consequences to myself in this
situation ?
Social consequences If I consider all of the possible consequences of my actions, for everyone that is Utilitarianism
affected, will we be better or worse off overall? How likely are these
consequences and how significant are they?
Duties to others Who do I have obligations to in this situation? What would happen if everybody Ethics of duty
acted in the same way as me? Am I treating people only to get what I want for
myself (or my organization) or am I thinking also of what they might want too?
Entitlements of Whose rights do I need to consider here? Am I respecting fundamental human Ethics of rights
others rights and people’s need for dignity?
Fairness Am I treating everyone fairly here? Have processes been set up to allow everyone Theories of justice
an equal ch ance? Are there major disparities between the ‘winners’ and ‘losers’
that could be avoided?
Moral character Am I acting with integrity here? What would a decent, honest person do in the Virtue ethics
same situation?
Care for others and How do (or would) the other affected parties feel in this situation? Can I avoid Feminist ethics
relationships doing harm to others? Which solution is most likely to preserve healthy and
harmonious relationships among those involved?
Process of resoling What norms can we work out together to provide a mutually acceptable solution Discourse ethics
conflicts to this problem? How can we achieve a peaceful settlement of this conflict that
avoids ‘railroading’ by the most powerful player?
Moral impulse and Am I just simply going along with the usual practice here, or slavishly following Postmodern ethics
emotions the organization’s code, without questioning whether it really feels right to me?
How can I get closer to those likely to be affected by my decision? What do my
e motions or gut feelings tell me once I’m out of the office?
Thank you!