Business Ethics Lecturer Piet Westerhuis Windesheim University Zwolle

Business Ethics Lecturer: Piet Westerhuis Windesheim University, Zwolle The Netherlands

Introducing Business Ethics Lecture 1

Overview • What is business ethics? • Why is business ethics important? • Globalization: a key context for business ethics? • Sustainability: a key goal for business ethics?

What is business ethics? Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.

Ethics and the law Ethics grey area Law

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

The relationship between morality, ethics and ethical theory … to produce ethical theory … Ethics rationalize s morality … Morality Ethics Ethical theory …that can be applied to any situation. Potential solutions to ethical problems

Why is business ethics important? 1. 2. 3. 4. 5. 6. 7. Power and influence of business in society Potential to provide major contribution to society Potential to inflict harm Increasing demands from stakeholders Lack of business ethics education or training Continued occurrence of ethical infractions Interesting and rewarding

Types of misconduct across sectors 27% 20 25% 24% 22% 21% 20% 21% 19% 10 © 2008 Ethics Resource Center 30 Nonprofit Business Government 0 Putting own interests Lying to employees Abusive behavior ahead of org Source: Ethics Resource Center (2008)

Observed ethical misconduct across sectors 60% 57% 52% 56% 52% 55% 50% 46% 55% 46% 49% 43% © 2008 Ethics Resource Center 75% Nonprofit 25% Business Government 0% 2000 2003 2005 2007 Source: Ethics Resource Center (2008)

Differences across organizational types Stakeholders Main priorities in addressing ethical issues Large corporations Financial integrity, employee/customer issues Formal, public Approach to managing ethics relations and/or Small businesses Civil society organizations Public sector organizations Financial integrity, employee/customer issues Delivery of mission to clients; integrity of tactics; legitimacy and accountability Rule of law, corruption, conflict of interest; procedural & accountability issues Informal, trustbased Informal, valuesbased Formal, bureaucratic Owners Donors and clients General public, higher level government organizations Lack of resources and attention Lack of resources and formal training Inertia, lack of transparency systems-based Responsible and/or accountable to Shareholders and other stakeholders Main constraints Shareholder orientation; size and complexity

Globalization: a key context for business ethics?

What is globalization? • Globalization is not the same as: as – ‘internationalization’ – ‘westernization’ • Globalization is: a process which diminishes the is necessity of a common and shared territorial basis for social, economic, and political activities, processes, and relations. – ‘deterritorialization’

Relevance of globalization for business ethics • Cultural issues • Legal issues • Accountability issues Globalization can affect all stakeholders of the corporation

Ethical impacts of globalization Stakeholders Shareholders Employees Ethical impacts of globalization Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of global capital markets, leading to additional financial risks and instability. Corporations outsource production to developing countries in order to reduce costs in global marketplace - this provides jobs but also raises the potential for exploitation of employees through poor working conditions. Consumers Global products provide social benefits to consumers across the globe, but may also meet protests about cultural imperialism and westernization. Globalization can bring cheaper prices to customers, but vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs. Suppliers & competitors Suppliers in developing countries face regulation from MNCs through supply chain management. Small scale indigenous competitors exposed to powerful global players. Civil society (NGOs, etc) Global business activities brings the company in direct interaction to local communities with possibility for erosion of traditional community life; globally active pressure groups emerge with aim to “police“ the corporation where governments are weak and tolerant. Government & regulation Globalization weakens governments and increases the corporate responsibility for jobs, welfare, maintenance of ethical standards, etc. Globalization also confronts governments with corporations from different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy.

International perspectives on business ethics

Different approaches to business ethics • Who is responsible for ethical conduct in business? • Who is the key actor in business ethics? • What are the key ethical guidelines for ethical behaviour? • What are the key issues in business ethics? • What is the most dominant stakeholder management approach?

Regional differences: Europe, North America, Asia Europe N. America Asia Social control by the collective The individual Top management Who is the key actor in business ethics? Government, trade unions, corporate associations The corporation Government, corporations What are the key guidelines for ethical behaviour? Negotiated legal framework of business Corporate codes of ethics Managerial discretion What are the key issues in business ethics? Social issues in organizing the framework of business Misconduct and immorality in single decisions situations Corporate governance and accountability What is the dominant stakeholder management approach? Formalised multiple stakeholder approach Focus on shareholder value Implicit multiple stakeholder approach, benign managerialism Who is responsible for ethical conduct in business?

Sustainability: a key goal for business ethics?

Defining sustainability • Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (World Commission on Environment and Development 1987) • Sustainability refers to the long-term maintenance of systems according to environmental, economic and social considerations

The three components of sustainability Economic Social Environmental

Triple bottom line • Coined by John Elkington • Bottom line thinking suggests sustainability as a goal • Three dimensions: – Environmental perspectives – Economic perspectives – Social perspectives

Corporate commitments to sustainability Company Sustainability statement Source BP “At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support of our customers, shareholders and the communities in which we operate. ” Sustainability Report, 2007 De. Beers “[Sustainability] means enhancing our relationship with host and partner governments, building consumer confidence in diamonds, and ensuring our activities contribute positively to … both present and future generations. ” www. debeersgr oup. com, 2009 Nokia “Corporate responsibility (CR) at Nokia is a collective effort. We believe that management of CR issues is most effective when sustainability policies and programs are embedded in every aspect of our operations. ” CSR Report, 2007 Toyota Volkswagen “ [For Toyota, a guiding principle is] ‘contributing to the development of a prosperous society through the manufacture of automobiles. ’ ‘Contributing to the development of a prosperous society’ means ‘contributing to the sustainable development of the earth. ’” “Values, social responsibility and active sustainability are integral [to] our company culture. We are future-oriented in our approach to important issues such as climate change. We operate a broad range of [R&D] activities and provide trend-setting approaches to the mobility of tomorrow. ” Sustainability Report, 2008 www. volkswag enag. com, 2009

Summary • Definition of business ethics • Business ethics is vital for business in contemporary capitalism • Global view is essential to understand ethical issues • Different regions have distinctly different perspective on business ethics issues • Sustainability is an important goal for business ethics