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Ethics/Economics Integrated Program Damian Grace.

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1 Ethics/Economics Integrated Program Damian Grace

2 Friedman on business ethics  Business is amoral.  An instrument like a hammer.  Can be used for good or evil  Business the means to non-moral goods.  Ethical business is the pursuit of the ends for which the business was originated.  The standard reason for business is wealth generation - profit.

3 Moral goods They are about serious personal commitments, adhering to principle and treating others with respect. Businesses, argues Friedman, can’t do these things. The terms on which they deal are defined by law, not morality. Hence, it is mistaken to expect an airline business or a retailer or a financial services firm to express moral values in their operations.

4 Friedman’s view was not new  He articulated an old view of business: why?  By 1970, this view had begun to be challenged by the view that business should be socially responsible.  Friedman’s response was his famous article (“The social responsibility of business is to increase its profits”) reasserting the traditional doctrine of business.

5 Business served one human purpose  Government served others.  Charitable organisations served another.  Churches served yet another.  The mistake was to confuse business with these other purposes.  Business was fundamental to wealth generation and if this were compromised, then other purposes would suffer, not prosper.

6 Dame Anita Roddick  Did not separate the Business Purpose from other purposes - notably, social causes.  The difficulty in dismissing Roddick’s views is that she was a successful business woman who proposed a model of business very different from Friedman’s traditional model.

7 Dame Anita Roddick 1942 - 2007

8 In 1970, Gordon Roddick took his girlfriend, Anita Lucia Perelli, to San Francisco. There, Anita was introduced to a hippy establishment that sold shampoo and body cream. It was in a converted garage, so its owners, Peggy Short and Jane Saunders, called it The Body Shop. Anita was an enthusiastic customer, buying lots of soaps, loofahs, cosmetics and potions.

9 Six years later,  Anita borrowed a small amount of money and opened a cosmetics shop in Brighton that she called The Body Shop.  Like its American counterpart, it was painted green and sold its wares in plastic bottles with hand written labels. Similarly, it offered discounts to customers who refilled their containers.

10 According to Jon Entine, Anita’s borrowings included the signature green paint, and similar product lines, such as Four O’Clock Astringent rebranded as Five O’Clock Astringent, and Korean Washing Grains rebranded as Japanese Washing Grains.

11 In 1987,  The Roddicks paid Jane and Peggy $M3.5 for the name of their shop, which then became Body Time.  Entine claims this payment also bought their silence on the origins of The Body Shop.

12 The official story differs from Entine’s  In the 60s, Anita quit her job as a teacher to travel. These travels became the inspiration later for the plan to market natural cosmetics through The Body Shop.  Roddick said:  When you’ve lived for six months with a group that is rubbing their bodies with cocoa butter, and those bodies are magnificent, or if you wash your hair with mud, and it works, you go on to break all sorts of conventions, from personal ethics to body care.

13 But, according to public relations director, Janis Raven stories such as Roddick being inspired by her travels in Polynesia are fiction. I think Anita Roddick is a very brilliant woman… (who has) gone over the top. … If you start believing all this stuff that is written about you, you have got to go dotty, haven’t you? She started to believe her own publicity and this is always the death knell to anybody.

14 It’s not just doubts about Roddick, but also The Body Shop  Body Shop products have always been based on petro chemical ingredients. It uses plastic packaging.  Body Shop cosmetics have used ingredients that have been animal tested.  The Body Shop began contributing to charities 11 years after start up, and only after Jon Entine’s 1994 exposé.  The Body Shop has discharged pollutants into the environment.  The fair trade basis of Body Shop has contributed little to Third World development.

15 The critical story continued  Bacterial contamination of product is common and its control through synthetic additives undermines the ‘natural’ claim of BS.  Its products are low end with high prices - a premium for conscience.  Much of the firm’s income has come from questionable franchising practices.  The Roddick’s have amassed large personal fortunes from Body Shop.  The Roddicks sold out to Loréal in 2006, despite that corporation’s use of animal testing.

16 The business A Canadian court last year found BS franchising practices an “egregious breach of widely accepted commercial morality … not consonant with our system of justice and general moral outlook”.

17 The business Share price went from 372 pence to around 70 in 2002 and back up to 299.25 under new management just before the sale to Loréal. In 2002, BS earned just £26.7 million on turnover of £400.7 million. With the sale to Loréal, the business seems to have picked up.

18 So, was Friedman right? Does the Body Shop illustrate that mixing social causes with business fails? Does the story show that in the hands of social activists, businesses underperform? Does it show that when businesses are run by those experienced in management and marketing, they do better? Does it show that ethical claims in business can poison the wells, and disappoint expectations falsely raised?

19 Actually, it might show the opposite  When Friedman wrote in 1970, it was simply inconceivable that the business system could accept social responsibility as a legitimate concern.  When Anita Roddick died on 10 September 2007, it was inconceivable that business could neglect social responsibility and succeed.

20 Let’s look at a menu of moral issues confronting business  NOTE: these issues are strategic and technical, but are viewed as ethical by the public and increasingly by governments.  Climate change, CO 2 discharge, pollution.  Elimination of poverty, Third World debt  Fair trade  Collaboration with authoritarian political regimes  Human rights issues

21 Where did Anita Roddick go right?  Entine and a few others are fundamentally critical of Body Shop and the Roddicks.  Their critical views and cynicism are not widely shared.  Roddick’s commitment to human rights, to breaking the mould of traditional business, to charities, to

22 Hence, The Body Shop Despite the criticisms of Entine and others –Has managed to carry an idea into the market place that its operations have not damaged. –Has elevated the profile of social responsibility in business. This is Kidder’s point. Michael McCarthy in The Independent wrote: there seems no doubt that Anita Roddick, the founder of The Body Shop, did change profoundly the way that we think about things, in a way that flowed on to change the world itself.

23 Roddick’s message “I think you can trade ethically, be committed to social responsibility, empower your employees. I think you can rewrite the book on business.” Roddick called other business people - her bankers for example - “robber barons” and “blood sucking dinosaurs”.

24 Roddick adopted a moral business persona Entine has criticised this as politically correct and as cynical exploitation of ethical concerns. But Roddick gave the public an opportunity to choose and they chose her products because of the values she proclaimed. Where Friedman eschewed public morality and sought to maximise preferences and wealth - Utilitarian maximisation - Roddick stood for deontological values, such as justice and human rights.

25 Allegations of smoke and mirrors Roddick did get animal testing banned in the UK and Europe, even if the idea wasn’t hers and the leg work was done by others. Fair trade was her idea even if she wasn’t exemplary in implementing it. Many charities continue to regard Roddick as making a significant difference to them.

26 Enough to make a change In short, despite Entine’s recycled criticisms, Anita Roddick did have enough credibility to make a large difference, even if she was not perfect. Pace Kidder, there is NO ‘balance’ between ethics and creativity, but one doesn’t have to be ‘pure’ to do good. Are we to hold those who don’t care about ethics to a lower standard than those who do?

27 Friedman today?  Business works best when it is least fettered.  People work best when they are free to make their own decisions.  Combining these two points, one can conclude that a pro-active business response to the menu of moral issues will head off government regulation; and attract market support. The example of The Body Shop supports such a belief - even if Entine’s criticisms are well-founded.

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