Business Ethics

Front 1

Friedman Viewpoint

Back 1

The social responsibility of business is to increase profits. Primary responsiblity of executives is to the stockholders (owners) of the corporation (while conforming to law and custom); responsiblity as individuals vs. responsiblity as executives; CSR means acting "not in the interst of [one's] employers" (the stockholders); CSR as unlawful taxation (imposed by an unelected official); CSR as stealing from the stockholders; social responsibility is the job of gov't, not corporations; not the job of executives to distribute socila goods; CSR undermines a free society.

Front 2

CSR is...

Back 2

Corporate Social Responsibility

Front 3

Stone's Viewpoint

Back 3

"Why Shouldn't Corporations Be Socially Responsible?"
Asks why corporations should be exempted from social responsibility; presents four arguemnts against CSR and then shows why they are bad arguments. 4 arguments are: Promissory Argument, Agency Arg., Role Arg. and Polestar Arg. Problem with first three is that they don't recognize that sometimes certain obligations can be overridden; the problem with the last is that it's not clear that having a narrow focus 9liek focusing on profits along) is actually sound business practice.

Front 4

Promissory Argument

Back 4

Corporations promise their shareholders that they'll maximize profits

Front 5

Stone's problems with promissory argument

Back 5

1.) Few if any shareholders except a maximization of returns, or extract such a promise.
2.) Little to no manager/shareholder contact, hence no opportunity even exists for the buyer to have propsed terms binding on the managers.
3.) Even if a promise did exist, other interests may justify breaking a promise.

Front 6

The Agency Argument

Back 6

Executives act as agents of shareholders, and are responsible for fulfilling the shareholders' wishes (i.e. maximize profits).

Front 7

Stone's problems with Agency Argument

Back 7

1.) As a matter of law, directors are not mere agents of shareholders.
* must recognize other issues beyond shareholders wants. Must see other potential obligations.
*i.e. employees, society, etc.
2.) As a matter of fact, managment controls who runs the corporation more.
*Managers have more control than shareholders. Shareholders are more under the control of the managers/executives. (executives vote who is on their shareholder committee). Power comes from the board of directors.
* Rare that the opposite power relation occur. That being shareholders have power over executives.
* Shareholders vote on board of directors, eleciton fo candidates is done by executives, who then have the shareholders vote.
3.) Assumes that executives are not equally or more so aagents of employees, customers, creditors, the state, etc.
*to maximize profits -always end goal.
4.) If the executives are agents, they sure don't act like it.
* If executives are agents who have the job of maximizing profits - if you look at their behavior - they do lots of things that do not look they are maximizing profits.

Front 8

The Role Argument

Back 8

People have obligations based on their role (i.e. job)
Examples:
1.) Priest, doctors and confidentiality - must keep what is told to them to themselves.
2.) Soldiers and obedience - Obedience to higher officers and society at large.
3.) Parent/guardian and care - good care of children.

Front 9

Stone's problem with role argument.

Back 9

The obligation on the role as fiduciaries is limited to one of openess, fairness, generally responsible behavior.
*CSR asks companies to spend more on pollution reduction than required by law, but not to bankrupt themselves in the process.
*No obligation implied to violate or ignore other moral obligations on shareholders' behalf.
Common failing - obligations are of limited strength, and can be (often easily) overridden by competing obligations.
* Shareholders are less effected by such a broken obligation than (for example) an employee is by a broken obligation that closes his factory.
* impact on employees if they are fired has a much greater impact than that of a broken obligation with a shareholder.

Front 10

The "Polestar" Argument

Back 10

Acting as if on had an obligaiton maximize profits that benefits us all.

Front 11

Stone's problem with the polestar argument.

Back 11

This argument has a number of underlying assumptions.
* Numbers are tangible means of measuring sucess, more than moral judgments.
* Resovling moral issues requires speacial expertise. (shouldn't ask executives to be involved in CSR because they are not good at it because it is not thier expertise- their expertise is making money).
* Investment advisors shoudl have a 'narrow view'.
*BAD; never know what parts of the world will impact the company investments. Broad foucs is better
*Ordinary Moral capacities
*Thinking about moral concepts could save money - less pollution = less fines or less employee health problems.
* Limits of busines expertise to surpass vague judgment label
Corporate directors engaging in CSR are acting as unelected civil servants.
*one solution is to not have CSR. But another is to make directors publicly elected.
* Friedman fails to acknowledge this alternate solution to the problem.
*the alternative is no other alternative for friedman.
* alternative could be - make executives elected civil servants.

Front 12

Evan & Freeman

Back 12

"Kantian Capitalism"
Stakeholder theory; five stakeholder groups; rooted in Kant formula of Humanity (can't treat others merely as a means); must allwo each stakeholder group to have a say in major business decisions affecting it: legal adn economic reasons for corporations to have respobsibility to all stakeholders (moral reason = rooted in Kant's FH); Principle of Corporate Rights;

Front 13

Evan & Freeman

Back 13

claim that the shareholders do not have a special, priviledged role in dertemeing a corporation's behavior, but that corporations have a responsibility to their stakeholders.

Front 14

The Legal Argument for a stakeholder theory

Back 14

The law has progressively been developing toward the notion that companies are responsible to more than just stockholders. While stockholders have primacy in their claims, the intersts of others often contrains them.
*Companies have legal obligations to their customers, even when they aren't selling to them directly.
* Legal protections of worker rights (rights to unionize, anti-discrimination).
* Legal protectiosn of society at large (EPA regulations, etc.).

Front 15

The Economic Argument for a stakeholder theory

Back 15

contrasted with the "invisible hand" argument (cf. Polestar), unregulated markest in fact produce strong negative affects, and not the 'greatest good'/
* Tragedy of the commons, and treating others as a means.
* monopolies lead to abuse, price-fixing, inefficient behavior.

Front 16

The Stakeholder Theory

Back 16

If the corporation requires treating others as means to an end, those others must have the opportunity to participate in the decision to be used as such.

Front 17

Two basic guiding principles of stakeholder theory.

Back 17

Principle of Corporate Rights (PCR) and Principle of Corporate Effects (PCE).

Front 18

Principle of Corporate Rights (PCR)

Back 18

The corporation and its managers may not violate the legitimate rights of others to determine their own future.

Front 19

Principle of Corporate Effect (PCE)

Back 19

The corporation and its managers are responsible for hte effects of their actions on others.

Front 20

What and who is a stakeholder?

Back 20

* Those who have a claim on the firm (a la stockholders)
* Narrow defintion - those who are vital to the firms surviva/success.
* Wide defintion - those the company can/does affect or is affected by.
* Each group has its own relationship to the corporation, and its own set of reciprocal claims.

Front 21

"Stakeholders Board of Directors"

Back 21

employees, customers, suppliers, stockholders, and members of local community, as well as a representative of the corporation, whom Evan and Freeman would call teh "metaphysical director" since he or she who be repsonsible for the metaphysical entity that is "the corporation".

Front 22

Principle of Corporate Legitmacy

Back 22

The corporation shoudl be managed for the benefit of its stakeholders: its customers, suppliers, owners, employees, and local communities. The rights of these groups must be ensured, and, further, the groups must prarticipate, in some sense, in decisions that substantially affect their welfare.

Front 23

The Stakeholder Fiduciary Principle

Back 23

Managment bears a fiduciary relationship0 to stakeholders and to the corporation as an abstract entity. It must act in teh interests of the stakholders as their agent, and itmust act in the intersts of the corporation to ensure the survival of the firm, safeguarding the long term stakes of each group.

Front 24

Social Contract Theory
(Donaldson)

Back 24

the contract of moral obligations between a gov't and its citizens is called a social contract.
* No explicit promise or agreement made.
* states there are still moral binding obligations based on the nature of the state, and its relationship to those within it.

Front 25

So, what justifies a social contract between persons and businesses? Is there an anaglogy between corporations and governments?

Back 25

* Both are artifical entities, created by people, adn dependen ton their cooperation for continued existence.
* Both are 'social giants' - bodies with tremendous social influence and power

Front 26

Terms of the social contract

Back 26

* General form "the memebers of society agreed to do X, and the productive organization agrees to Y".

Front 27

In a social contract what does a corporation need from society?

Back 27

* Recognition as a single agent.
* The authority to own/use resources and hire employees
*** These are not merely rights of corporations because, unlike social organizations, corporations use (often in great #s) society's limited resources.

Front 28

According to Donaldson what does socieyt need form corporations? What should it expect?

Back 28

At the least, more benefit than harm, otherwise why agree tohave corporations?

Front 29

According to Donaldson who's most likely to gain/lose from corporations?

Back 29

Consumers: because they have an economic interest.
*Gain: enhancement of their economic interest.
*Lose: destruction and depletion of natural resources, destruction of personal accountability, and misuse of political power.
Employees: anyone who contributes labor (anyone involved in contributing to the productive process).
*Gain: increased income, diffused personal liablity, and adjusted personal income allocation.
*Lose: worker alienation, lack or worker control over work conditions, and monotomy and dehumanization.

Front 30

Minimum standards of justice - what are these according to donaldson?

Back 30

*Organizational: (gross, wide scale; behaviors that are clearly unfair, or cause grevious harm, or fail to respect a large group are clearly unjust.
* Justice clearly requires avoiding fraud, deception, disrespect for workers/consumers.
*Kantian in that no amount of good results will justify overturning the requirement of justice (can't have 1% slaves for 99% heaven).

Front 31

Brenkert -"Private Corporations & Public Welfare"

Back 31

Problem with CSR = illegitmate encroachment of private organizations into public realm/sphere (making the public worse off since corporations are undemocratic adn materialistic); has four problems with CSR.

Front 32

Brenkert's Four Problems with CSR

Back 32

1.) little means of redress against corporations if CSR goes badly (in contrast to public groups).
2.) corporate decisions are private, not made by society in general.
3.) community relations are broken down if CSR si the norm.
4.) citizenship suffers because of CSR, it reduces obligations to the state.

Front 33

Downward leveling

Back 33

since sales go to the lowest seller (i.e. the cheapest provider of goods), there is international competition to reduce production costs.
*benign process, when it lowers prices via efficiency, innovation.
*malignant, when it leads to reduction in wages, benefits, and environmental protections.
**global copetition (or even its threat) forces suppliers and gov'ts to either cave to corporate demands or face total loss of jobs.
**Globalization has created a huge labor market, giving corporations tremendouse leverage.

Front 34

Seven Danger Signals of malignant leveling

Back 34

Race to the bottom, Downward spiral, polarization of haves and have-nots, loss of democratic control, uncontrolled global corporations, unaccountable global institutions and global conflict.

Front 35

Race to the bottom(Seven Danger Signals)

Back 35

*reduction in labor, social, & environmental conditions.
*Steady decline in US real wages, secure well-paying jobs replaced by short term jobs w/fewer benefits. (ex. part-time professors vs. full time professors).
*#1 job in US is a temp worker (part time work is more common than anything else).
*The third world situation is fare wose, little evidenc ethat foreign investment (global competition) raises wages.
*wage is not enough to live on even.

Front 36

Downward Spiral
(Seven Danger Signals)

Back 36

*competitive pressures cause countries to strip more and more $ from infrastructure development, health care, etc. (nation economic welfare).
*less income for workers + less public spending = recession and debt.
*debt service only further drains $, recession leads to unemployment and further economic pressures.
*average US worker works more than any other country.

Front 37

Polarization of Haves and Have-Nots
(Seven Danger Signals)

Back 37

Globalization has caused more domestic unemployment among low-wage workers and people of color.
*top 1/5 now recieve more than 80 % of the world's income, while poorest fifth receive 1.4 %.

Front 38

Loss of Democratic Control(Seven Danger Signals)

Back 38

*Free flow of capital reduces ability of gov'ts to affect economic policy.
*democratic processes for determining policy replaced by corporate control.
*trade agreements (GATT, NAFTA) limit sovereignty and govermental control.
*Power of the financial market (currency valuing) to coerce policy decisions.
*example of france who came into pwoer with a strong socialists agenda - within six months pressurs came in from the economic issues and companies.

Front 39

Uncontrolled Global Corporations
(Seven Danger Signals)

Back 39

* Corporations exist and act transnationally, but there are not global laws restricting them or protecting consumers.
*transnational identify removes the incentive to see any community as a stakeholder.
*DDT-US restricts-but US imports produce form other countries that use DDT. Corporations use this regulation difference in other countries to creat more profit. Corporations do this with other laws such as wages, health, etc.
*since not ties to any particular country anymore they don't feel that they are accountable to any country alone, therefore no accountability.

Front 40

Unaccountable Global Institutions
(Seven Danger Signals)

Back 40

*International economic institutions (IMF, WTO, World Bank) control and override domestic policies, and make policy in secret, with little or no democratic structure.
*these organizations have tremendous control over policies. Hearings are not public - not an open thing - no checks and balances, etc.

Front 41

Global Conflict
(Seven Danger Signals)

Back 41

*Trade wars lead to an increase in real wars.
*Increasing poverty and dissatisfaction aggravate nationalist and racist tendencies.
*tend to blame other people for there problems. Ex. Hitler- WWII blamed Jews, Gypsies,etc. for serious economic problems and so forth that they were in at that time. (germany was in stagflation)

Front 42

Brecher & Costello
"The Race to the Bottom"

Back 42

Globalization can lead to a "race to the bottom" due to the competition to lower labor, social and environmental costs; "downward leveling" of environmental, labor and social conditions results when corporations and gov'ts seek to lower production costs; corporations can influence gov'ts by threatenging to go elsewhere; "seven danger signals" of an out-of-control global economy.
*"Downward leveling is creating a lose-lose, engative sum game for the majority of the people in all parts of the world"(p.33)