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Week 3 Ethics, stakeholders and the social contract.

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1 Week 3 Ethics, stakeholders and the social contract

2 There are few circumstances among those which make up the present condition of human knowledge, more unlike what might have been expected, or more significant of the backward state in which speculation on the most important subjects still lingers, than the little progress which has been made in the decision of the controversy respecting the criterion of right and wrong. John Stuart Mill (1863) - Utilitarianism

3 Licensed to Kill Inc. incorporated and licensed in Virginia, March 2003 Purpose, as written in articles of incorporation: the manufacture and marketing of tobacco in a way that each year kills over 400,000 Americans and 4.5million other persons worldwide

4 What is a stakeholder? those groups without whose support the organization would cease to exist any group or individual who can affect or is affected by the achievement of the organization's objectives

5 Stakeholder categories Voluntary – involuntary Internal - external

6 Stakeholder groups 1 Managers Employees Customers Investors Shareholders Suppliers Government

7 Stakeholder groups 2 Society The local community The environment The future

8 Multiple stakeholding Customer Employee Shareholder Member of society Member of local community

9 Stakeholder objectives Return on investment Low price Quality Security A pleasant environment

10 Stakeholder ownership legal v actual ownership composition of the firm power and influence quasi-ownership of stakeholders power of internal stakeholders power of external stakeholders

11 Why a concern with stakeholders? Ownership of the firm accountability improved performance natural justice the future

12 Stakeholder Theory All stakeholders considered in decision making Why: Morally & ethically correct Benefits shareholders What actually happens

13 Stakeholder importance for companies

14 Rationale for Stakeholder Theory Maximising wealth for shareholders fails to maximise wealth for society and all its members Only a concern with managing all stakeholder interests achieves this

15 Effects of an organisations activities the utilisation of natural resources as a part of its production processes the effects of competition between itself and other organisations in the same market the enrichment of a local community through the creation of employment opportunities transformation of the landscape due to raw material extraction or waste product storage the distribution of wealth created within the firm to the owners of that firm (via dividends) and the workers of that firm (through wages) and the effect of this upon the welfare of individuals

16 Spatial externalisation environmental degradation though spoil heaps or through increased traffic imposes costs upon the local community through reduced quality of life causing pollution imposes costs upon society at large waste disposal problems impose costs upon whoever is tasked with such disposal removing staff from shops imposes costs upon customers who must queue for service just in time manufacturing imposes costs upon suppliers by transferring stockholding costs to them

17 Temporal externalisation 1 deferring investment to a future time period and so increasing reported value in the present failing to provide for asset disposal costs in capital investment appraisal and leaving such costs for future owners to incur failure to dispose of waste material as it originates and leaving this as a problem for the future causing pollution which must then be cleaned up in the future

18 Temporal externalisation 2 depletion of finite natural resources or failure to provide renewable sources of raw material will cause problem for the future viability of the organisation lack of research and development and product development will also cause problem for the future viability of the organisation eliminating staff training may save costs in the present at the expense of future competitiveness

19 The Social Contract obligations to individuals obligations to groups and organisations obligations to government obligations to society obligations to self


21 Organisational ideologies dominant ideology shapes activities operational foundation ethical foundation external relations relationship with stakeholders social contract standards of fair trading

22 Ethical foundation 2 internal relations corporate culture contractual obligations standards of employment

23 Social responsibility and organisational values business ethics agency theory stakeholder theory corporate governance Combined Code of Corporate Governance

24 Ethics and control systems the nature of control systems organisations v individuals facilitating goal congruence organisational and individual goals reward structures coercion and manipulation behaviour modification

25 Arguments against business ethics added cost legal and regulatory framework collective responsibility decisions taken by groups groupthink / risky shift individual ethics conflict between individual freedom and corporate needs

26 Ethical standpoint and the individual loyalty to employers reciprocation? loyalty to profession codes of conduct future career loyalty to self core values self actualisation

27 Determinants of ethical stance social constraint obedience to the law social expectations obedience to social norms and values social concern long term perspective

28 Reasons for unethical behaviour lapses in individual ethics legitimating decisions through public acceptance ruthless pursuit of self interest outside pressure the bottom line responsibility shifting organisations are externalising machines

29 No hiding place the veil of incorporation ultra vires collective v individual responsibility ignorance is no defense professional codes of conduct the Panopticon

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