Chapter 42 Ethics and Social Responsibility of Business

Law and Ethics  Ethics: A set of moral principles or values that governs the conduct of an individual or group  Rule of law and rule of ethics may demand the same response  Law may permit an act that is ethically wrong  Law may demand certain conduct, but person’s ethical standards are contrary Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-2

Law and Ethics Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-3

Moral Theories of Business Ethics Ethical Relativism Ethical Fundamentalism Utilitarianism Kantian Ethics Rawls’s Social Justice Theory Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-4

Ethical Fundamentalism  A person looks to an outside source or a central figure for ethical rules or commands  This maybe a book or a person  Critics argue that ethical fundamentalism does not permit people to determine right and wrong for themselves Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-5

Utilitarianism  A person must choose the action or follow the rule that provides the greatest good to society  Origins in works of Bentham and Stuart  It has been criticized because:  It is difficult to estimate the “good” that will result from different actions  It is hard to apply  It treats morality as an impersonal calculation Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-6

Kantian Ethics  A person owes moral duties based on universal rules  The rules are based on two principles:  Consistency—All cases are treated alike  Reversibility—Actor must abide by the rule he or she uses to judge the morality of someone else’s conduct  Critics argue that it is hard to reach a consensus as to what the universal rules should be Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-7

Rawls’s Social Justice Theory  A person has a social contract with all others in society to obey moral rules that are necessary for people to live in peace and harmony  Origins in work of Locke and Rousseau  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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-8

Rawls’s Social Justice Theory  Two major criticisms of this theory:  Establishing the blind “original position” for choosing moral principles is impossible in the real world  Many persons in society would choose not to maximize the benefit to the least advantaged persons in society Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 42-9

Ethical Relativism  A person must decide what is ethical based on his or her own feelings as to what is right or wrong  No universal ethical rules to guide a person’s conduct  Critics argue that actions widely regarded as unethical, would be seen as ethical under this theory, depending on perpetrator’s viewpoint Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Summary of Moral Theories TheoryDescription Ethical fundamentalism Persons look to an outside source or central 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. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Summary of Moral Theories TheoryDescription Rawls’s social justice theory Moral duties are based on an implied social 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. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Social Responsibility of Business  A theory that requires corporations and businesses to act with awareness of the consequences and impact that their decisions will have on others  Corporations and businesses are considered to owe some degree of responsibility for their actions Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Theories of Social Responsibility Maximizing Profits Moral Minimum Stakeholder Interest Corporate Citizenship Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Maximizing Profits  Corporation owes a duty to take actions that maximize profits for shareholders  Interests of other constituencies are not important in and of them  Milton Friedman, who won the Nobel Prize in economics, advocated the theory of maximizing profits for shareholders Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Case 42.1: U.S. Supreme Court Business Ethics  Case  Walmart Stores, Inc. v. Samara Brothers, Inc.  529 U.S. 205, 120 S.Ct. 1339, 146 L.Ed.2d 182, Web 2000 U.S. Lexis 2197  Supreme Court of the United States  Issue  Must a product’s design have acquired a secondary meaning before it is protected as trade dress? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Moral Minimum  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  Legislative and judicial branches of government have established laws to enforce moral minimum Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Sarbanes-Oxley Act  Companies must disclose whether they have a code of ethics for senior financial officers  Compelling public companies to act ethically in dealings with shareholders, employees, and other constituents  Makes certain conducts illegal and establishes criminal penalties for violations Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Stakeholder Interest  Corporation must consider the effects its actions have on persons other than its shareholders  Critics argue that it is difficult to harmonize the conflicting interests of stakeholders Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Other Stakeholders of a Business Customers EmployeesSuppliers Local Community Creditors Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Case 42.2: U.S. Supreme Court Corporate Political Speech and Ethics  Case  Citizens United v. Federal Election Commission  130 S.Ct. 876, 175 L.Ed.2d 753, Web 2010 U.S. Lexis 766 (2010)  Supreme Court of the United States  Issue  Do the challenged federal restrictions on campaign financing and electioneering violate the free speech rights of Citizens United? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Corporate Citizenship  Business has a responsibility to do good  A major criticism of this theory is that the duty of a corporation to “do good” cannot be expanded beyond certain limits  Corporate social audit: Examines how well employees have adhered to the company’s code of ethics and how well the company has met its duty of social responsibility Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Summary of Theories of Social Responsibility TheorySocial 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. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall