PowerPoint Slides to Accompany

BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman

Chapter 7
Ethics and Social
Responsibility of Business

Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA

Copyright © 2004 by Prentice-Hall. All rights reserved.

Introduction
 Businesses organized in the United States
are subject to its laws.
 They are also subject to the laws of other

countries in which they operate.

 Business persons owe a duty to act ethically

in the conduct of their affairs.

 Businesses owe a social responsibility not to

harm society.

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Law and Ethics
 Ethics – A set of moral principles or values
that governs the conduct of an individual or a
group.
 What is lawful conduct is not always ethical

conduct.
 The law may permit something that would be
ethically wrong.

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Moral Theories and Business Ethics

Ethical Utilitarianism
Fundamentalism

Ethical Relativism

Rawls’s Social Kantian Ethics

Justice Theory

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Ethical Fundamentalism
 Ethical fundamentalism - When a person
looks to an outside source for ethical rules or
commands.
 Critics argue that ethical fundamentalism

does not permit people to determine right

and wrong for themselves.

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Utilitarianism
 A moral theory that dictates that people must
choose the action or follow the rule that
provides the greatest good to society.
 This does not mean the greatest good for the

greatest number of people.

 Has been criticized because it is difficult to

estimate the “good” that will result from

different actions.

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Kantian Ethics (Duty Ethics)
 A moral theory that says people owe moral
duties that are based on universal rules.
 Based on the premise that people can use

reasoning to reach ethical decisions.

 This theory would have people behave

according to the categorical imperative:

“Do unto others as you would have them do
unto you.”

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Kantian Ethics (Duty Ethics) (continued)
 Deontology’s universal rules are based on
two important principles:
1. Consistency – all cases are treated alike
with no exceptions.
2. Reversibility – the actor must abide by the
rule he or she uses to judge the morality of
someone else’s conduct.

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Kantian Ethics (Duty Ethics) (continued)
 Thus, if you are going to make an exception
for yourself, that exception becomes a
universal rule that applies to all others.
 A criticism of this theory is that it is hard to

reach a consensus as to what the universal

rules should be.

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Rawls’s Social Justice Theory
 Rawls’s social contract
A moral theory that says each person is
presumed to have entered into a social
contract, with all others in society, to obey
moral rules that are necessary for people to
live in peace and harmony.

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Rawls’s Social Justice Theory (continued)
 Rawls’s Distributive Justice Theory
 Fairness is considered the essence of justice.
 The principles of justice should be chosen by

persons who do not yet know their station in

society.
 This “veil of ignorance” would permit the

fairest possible principles to be selected.

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Rawls’s Social Justice Theory (continued)
 There are two major criticisms of this
theory:
1. Establishing the blind “original position” for
choosing moral principles is impossible in
the real world.
2. Many persons in society would choose not
to maximize the benefit to the least
advantaged persons in society.

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Ethical Relativism
 A moral theory that holds that individuals
must decide what is ethical based on their
own feelings as to what is right or wrong.
 There are no universal ethical rules to guide

a person’s conduct.
 If a person meets his or her own moral

standard in making a decision, no one can

criticize him or her for it.

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Ethical Relativism (continued)
 A criticism of this theory is that an action
usually thought to be unethical would not be
unethical if the perpetrator thought it was in
fact ethical.

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Theories of Ethics – Summary (1 of 2)
Theory Description
Ethical Persons look to an outside source or central
fundamentalism figure for ethical guidelines.
Utilitarianism Persons choose the alternative that would
provide the greatest good to society.
Kantian ethics A set of universal rules establishes ethical
duties. The rules are based on reasoning
and require (1) consistency in application
and (2) reversibility.

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Theories of Ethics – Summary (2 of 2)

Theory Description
Rawls’s social Moral duties are based on an implied social
justice theory contract. Fairness is justice. Rules are
established from an original position.
Ethical relativism Individuals decide what is ethical based on
their own feelings as to what is right or
wrong.

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The Social Responsibility of Business
 Business does not operate in a vacuum.
 Decisions made by business have far-

reaching effects on society.

 In the past, many business decisions were

made solely on a cost-benefit analysis.

 “Bottom line” impact.

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The Social Responsibility of Business
(continued)

 Such decisions may cause negative

externalities for others.
 Corporations are considered to owe some

degree of social responsibility for their

actions.

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Ethics Brief
Corporations that conduct social audits
will be more apt to prevent unethical and
illegal conduct by managers, employees,
and agents.

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The Social Responsibility of Business
(continued)

 Ethics is a function of history, culture,

religion, and other factors.
 Therefore, ethical standards vary from

country to country.
 The Caux Round Table promulgated an

international ethics code called the Principles

for International Business.

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The Caux Round Table Principles:
 Principle 1 The Responsibilities of Business
Beyond Shareholders Toward Shareholders

 Principle 2 The Economic and Social Impact

of Business: Toward Innovation, Justice, and
World Community

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The Caux Round Table Principles: (continued)
 Principle 3 Business Behavior: Beyond the
Letter of Law Toward a Spirit of Trust
 Principle 4 Respect for Rules
 Principle 5 Support for Multilateral Trade
 Principle 6 Respect for the Environment
 Principle 7 Avoidance of Illicit Operations

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Theories of Social Responsibility

Maximizing Moral Minimum

Profits

Corporate Stakeholder
Citizenship Interest

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Maximizing Profits
 A theory of social responsibility that says a
corporation owes a duty to take actions that
maximize profits for shareholders.

 The interests of other constituencies are not

important in and of themselves.

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Moral Minimum
 A theory of social responsibility that says a
corporation’s duty is to make a profit while
avoiding harm to others.

 As long as business avoids or corrects the

social injury it causes, it has met its duty of
social responsibility.

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Moral Minimum (continued)
 The legislative and judicial branches of
government have established laws that
enforce the moral minimum of social
responsibility on corporations.
 e.g., Occupational safety laws
 e.g., Consumer protection laws for product

safety

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Stakeholder Interest
 A theory of social responsibility that says a
corporation must consider the effects its
actions have on persons other than its
stockholders.
 This theory is criticized because it is difficult

to harmonize the conflicting interests of

stakeholders.

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Other Stakeholders of a Business

Employees Suppliers

Customers

Creditors Local Community

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Corporate Citizenship
 A theory of responsibility that says a
business has a responsibility to do good.
 Business is responsible for helping to solve

social problems.
 Corporations owe a duty to promote the

same social goals as do individual members

of society.

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Corporate Citizenship (continued)
 This theory argues that corporations owe a
debt to society to make it a better place.
 This duty arises because of the social power
bestowed on corporations.
 A major criticism of this theory is that the
duty of a corporation to “do good” cannot be
expanded beyond certain limits.

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Theories of Social Responsibility – Summary

Theory Social Responsibility

Maximizing profits To maximize profits for stockholders.

Moral minimum To avoid causing harm and to compensate for

harm caused.
Stakeholder interest To consider the interests of all stakeholders,
including stockholders, employees, customers,
suppliers, creditors, and local community.
Corporate citizenship To do good and solve social problems

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The Corporate Social Audit
 Corporate audits should be extended to
include the moral health of the corporation.

 Corporations that conduct social audits will

be more apt to prevent unethical and illegal
conduct by managers, employees, and
agents.

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The Corporate Social Audit (continued)

 The audit would examine how well:

 Employees have adhered to the company’s
code of ethics; and
 The corporation has met its duty of social

responsibility.

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The Corporate Social Audit (continued)
 Such audits would focus on the corporation’s
efforts to:
 Promote employment opportunities for
members of protected classes
 Worker safety

 Environmental protection

 Consumer protection

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The Corporate Social Audit (continued)
Companies should institute the following
procedures when conducting a social audit:
 An independent outside firm should be hired

to conduct the audit.

 This will ensure autonomy and objectivity.
 The company’s personnel should cooperate
fully with the auditing firm while the audit is
being conducted.

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The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
 The auditing firm should report its findings

directly to the company’s board of directors.

 The results of the audit should be reviewed

by the company’s board of directors.

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The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
 The board of directors should determine how

the company can:

 Better meet its duty of social responsibility;
and
 Use the audit to implement a program to

correct any deficiencies it finds.

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United Nations Code of Conduct for
Transnational Corporations
 Respect for National Sovereignty
 Adherence to Socio-Cultural Objectives and

Values
 Respect for Human Rights and Fundamental

Freedoms
 Abstention from Corrupt Practices

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